This FBT exemption has only applied to the personal use of EVs operated by businesses or financed under a novated lease. CarExpert.com.au founder Paul Maric told Yahoo Finance that this is coming at a major juncture for the EV industry.
“While people are now switching away from electric vehicles to plug-in hybrids, it’s the worst time possible for this kind of thing, because the people just don’t want to buy electric vehicles and they’re going to be removing the only real subsidy that is currently sort of gaining traction,” he said.
Battery-powered electric vehicles (BEVs) have been extremely popular compared to other engine types in Australia in the last few years.
Fewer than 3,000 BEVs were sold here in the second quarter of 2022, according to the Australian Automobile Association. But the FBT exemption for electric cars kicked in on 1 July 2022 and BEV sales exploded to more than 25,700 in the second quarter of 2023.
In this quarter, BEVs became the second most popular seller after internal combustion engine (ICE) cars.
However, sales have been stagnant ever since, with the latest figures showing there were 25,353 BEVs sold in Q2 this year.
PHEVs, on the other hand, have been slowly gathering momentum, with 1,894 sold in Q2 of 2022 and 4,675 sold in Q2 of 2024.
From January to the end of September this year, PHEV sales are up 120.5 per cent compared to the same period last year, which far outpaces hybrids (up 87 per cent) and BEVs (up 6.6 per cent).
“PHEVs are the best of both worlds,” Maric said. “You can drive long distances without needing to charge the vehicle and not having that range anxiety.
“And you’re also getting the benefit of being able to drive with zero emissions if you are driving shorter distances.”
Maric explained to Yahoo Finance how this leasing system works.
“If you were to lease that vehicle through your employer, and it was just a normal vehicle, you would have to pay a fringe benefits tax, whereas, if you’re getting an EV or plug-in hybrid through a novated lease, at least you don’t pay any of that FBT,” he said.
“When you do the sums on it, you can actually go down the path of buying a $20,000 to $30,000 more expensive electric vehicle and still have it cost the same as a cheaper vehicle once you take into account the tax benefits that you get out of it.”
Under a novated lease, your employer takes money directly from your pre-tax salary to make payments for your vehicle and its running costs.
If you have a novated lease on a PHEV, you might need to start squirrelling some cash away so that April 1 next year doesn’t sting as hard.
“It’ll just mean that you’re now liable for FBT, so depending on your salary, that could be thousands of dollars a year,” Maric added.
But he said many people with novated leases will have a balloon payment at the end, which can sometimes be more than the vehicle is worth.
“They’re left having to either refinance or pull money out of their pockets to actually get somewhere,” he said.
Having to saddle thousands of extra dollars to pay for your car could see a bunch of PHEV owners flood the market with second-hand cars.
Increased supply in that buyer’s market could mean you’ll have to lower your price to compete.
Maric told Yahoo Finance that hopefully that won’t be the case, but it could cause many Aussies to reconsider getting a PHEV.
“I think we’re going to see a big shift towards regular hybrids,” he said.
“People realise that that is the type of vehicle you need to buy if you want to protect your re-sale value, and if you still want the benefits of having a fuel and energy efficient vehicle.
“Stepping up to a plug-in hybrid or even an electric vehicle, you’re adding the complexity of having these batteries and then the charging equipment. Whereas with a hybrid, we’re seeing them hold their value extremely well, and anything electric at the moment is depreciating.”
EVs have become hugely popular in Australia in the past few years. (Source: Getty)·Jackyenjoyphotography via Getty Images
But hybrid vehicles have their own deadline looming, which is a big switch-up in the luxury car tax (LCT) exemption.
Hybrid vehicles that use less than seven litres of fuel per 100km and cost less than $89,332 are exempt from the LCT. If it’s over that amount, an extra 33 per cent gets added to the purchase price.
That threshold is getting lowered to 3.5 litres of fuel per 100km and cost less than $89,332.
But Maric believes a new incentive for PHEVs is needed so that the car doesn’t fade into obscurity.
“The government should be encouraged to actually extend that exemption period to align with the EV exemption period as we’re seeing a big slowdown in EV sales, and I think consumer confidence in that type of vehicle is being eroded,” he said.
The government said it will review the FBT exemption for BEVs by mid-2027.
It’s hard to know whether you should jump on the bandwagon and grab a PHEV before the April 1 deadline rolls round.
But Maric urged Aussies to wait a few months before making any big decisions.
“If interest rates are going to be going down, you’re going to be in a much better position to get a lease on a lower interest rate,” he explained.
“If you do it now, you’re locking yourself into a higher interest rate, which stays across the period of your novated lease.
“So I think it is a better opportunity to just wait and see what the market does. See if prices level out, get a better interest rate, and then lock it in before the FBT exemption is removed.”
