The tax exemption on plug-in hybrids is about to end

By: Toby Hagon

Plug-in hybrid electric vehicles could soon cost tens of thousands of dollars more for Australians keen to buy one.

Car shoppers only have until the end of March to take advantage of the government tax benefits on those hybrid models that can also be recharged externally.

The Fringe Benefits Tax exemption on plug-in hybrid electric vehicles (PHEVs) comes to an end on March 31, 2025.

That FBT exemption allows salaried employees to take out a novated lease on an electric car (EV, PHEV or hydrogen fuel cell priced below the luxury car tax threshold) and pay for it wholly from their pre-tax income but not pay the fringe benefits tax that would normally be incurred when the vehicle if the car is used for non-work purposes.

With a novated lease able to be taken for up to five years it can amount to tens of thousands in savings.

Time is running out

But to leverage the exemption owners need to take delivery of their PHEV prior to the March 31 cut-off to realise the tax benefits.

And the benefit is only available to plug-in hybrids – those that can be externally recharged – rather than regular hybrids, which are far more common.

The Australian Tax Office is clear that you must have made use of the PHEV prior to April 1 and that you have a “financially binding commitment to continue providing use of the vehicle on and after April 1 2025”.

The ATO continues: “From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under fringe benefits tax (FBT) law and isn't eligible for the electric cars exemption. However, you can continue to apply the electric car exemption where you meet the requirements.

Accounting firm PWC says it’s not the first time the ATO has relied on a financially binding commitment for car fringe benefits, pointing to the change in FBT rates in 2011.

Novated Lease Australia makes it even clearer by stipulating that “to take advantage of the current FBT exemption, your new PHEV lease must be fully settled and delivered before 31 March 2025”.

Accounting firm PWC says it’s not the first time the ATO has relied on a financially binding commitment for car fringe benefits, pointing to the change in FBT rates in 2011.

When do I have to buy a PHEV?

Shoppers have until March 31 to order and take delivery of a PHEV to leverage the FBT exemption.

You can place an order up until that day provided the novated lease arrangement can be entered into and the vehicle delivered by the March 31 cutoff.

In reality that means you’d likely have to get the paperwork moving at least a few days before then and ensure there is a car in stock with your name on it, although different leasing companies and dealerships may work at different speeds.

That said, the automotive and leasing industries are well aware of the looming deadline and are working hard to keep business ticking along.

The numbers highlight the appeal of leveraging the FBT exemption for the BYD Shark 6, the first plug-in hybrid ute on sale.

Sign a lease and drive away by March 31 and it’ll leave you out of pocket between and $11,973 and $14,239 annually over the term of a four-year lease, according to SG Fleet’s online calculator (the amount varies depending on your salary, which determines your tax bracket). Leave it until April 1 and estimates suggest that will jump to between $16,540.55 and $17,944.55 less in your bank account.

For someone earning $200,000 that amounts to a saving of $4,567.55 per year, or $18,270.20 over the four-year term of the lease. For more expensive cars the savings could be even greater.

Is the FBT exemption really worth rushing for?

The numbers highlight the appeal of leveraging the FBT exemption for the BYD Shark 6, the first plug-in hybrid ute on sale.

Sign a lease and drive away by March 31 and it’ll leave you out of pocket between and $11,973 and $14,239 annually over the term of a four-year lease, according to SG Fleet’s online calculator (the amount varies depending on your salary, which determines your tax bracket). Leave it until April 1 and estimates suggest that will jump to between $16,540.55 and $17,944.55 less in your bank account.

For someone earning $200,000 that amounts to a saving of $4,567.55 per year, or $18,270.20 over the four-year term of the lease. For more expensive cars the savings could be even greater.

Should PHEVs be exempt?

Plug-in hybrids are seen as a compromised technology, according to many in the industry, including Dan Caesar, the CEO of the Everything Electric show recently held in Sydney.

“Fundamentally you’re carrying around two powertrains; it doesn’t make sense in the long term,” said Caesar. “Once the consumer gets their hands on them they realise PHEVs are compromised.”

He’s referring to driving the car in EV mode but having an engine, gearbox and other hardware being dragged along for the ride.

Of course, the advantage of PHEVs is that you can drive them anywhere you can buy petrol. It means owners can charge at home most of the time before taking off on the big trip without having to worry about where to plug in. But don’t expect to achieve the manufacturer claimed fuel figures when you hit the road.

PHEVs typically have ludicrously low official emissions figures because they’re calculated from a government test that isn’t representative of real-world driving. The 20-minute test is conducted in a laboratory and covers 11 kilometres.

Cars can easily record average fuel use figures of 2.0 litres per 100km – or less. That’s because the EV side of the hybrid system can do most of the work during the test cycle. But on the road when you go for a longer drive you can easily use four or five times the number printed on windscreen sticker.

BYD provides some guidance. For its recently arrived Shark 6, BYD lists in the brochure the official combined fuel use figure of 2.0 litres per 100km. But the company also state the car will use about 7.9L/100km once the battery state of charge is below 25 per cent.

The push to extend the PHEV deadline

Unsurprisingly some arms of the leasing and automotive industries have been pushing the government to extend the PHEV cutoff.

That’s in part because despite more than a decade in the market, PHEVs are finally proving popular as prices sharpen, the technology matures, and the number of models increases.

Ford recently announced pricing for its upcoming Ranger PHEV, and Toyota says it will soon start selling PHEVs, even without the FBT incentives.

Last year PHEV sales doubled to 23,163, admittedly off a low base. In the first two months of 2025 Australians have bought 6779 PHEVs, almost half of them BYDs. Little wonder BYD is keen to see the FBT exemption continue.

“If the objective is to help Australians transition to a new energy vehicle we strongly believe that it should be reconsidered to include PHEVs,” says David Smitherman, CEO of BYD Australia importer EV Direct.

That said, the Chinese car maker believes buyer interest will still be strong.

The company has already started pre-selling a more affordable Essential version of the Sealion 6 SUV, which comes with less equipment from $42,990 plus on-road costs.

“We start to deliver the BYD Sealion 6 Essential [in April] … and we believe that will pick up the sales slack [from a drop off in novated lease customers].”