Fringe Benefits Tax Exemption Ends for Plug-In Hybrids

Those looking to switch from a petrol or diesel vehicle to a plug-in hybrid now have one less reason to make the change.

As of today – 1 April 2025 – the Australian Government has ended the Fringe Benefits Tax (FBT) exemption for plug-in hybrid vehicles (PHEVs), with the decision expected to affect the novated leasing industry.

Employers are required to pay FBT on some incentives provided to workers beyond their salary, such as a vehicle for personal use under a novated lease arrangement.

While PHEVs priced below the Luxury Car Tax threshold were previously exempt from FBT, the Australian Taxation Office (ATO) has ruled they will no longer be considered zero- or low-emissions vehicles – effectively removing their tax exemption status.

Plug-in hybrids typically offer between 40 and 180 kilometres of electric driving before the petrol or diesel engine takes over.

Sales data provided by the Federal Chamber of Automotive Industries (FCAI) shows sales of PHEVs jumped almost 350 per cent in February 2025, compared with the same period a year earlier.

Meanwhile, sales of electric vehicles dropped by 61 per cent in the same month, year-on-year.

While sales of plug-in hybrid SUVs increased 169.5 per cent, the introduction of plug-in hybrid utes to the Australian market accounted for 42 per cent of uptake.

Sales of PHEVs have been gaining momentum in Australia in recent years, as the number of cars on the market increases, the technology improves, and consumer understanding of the technology becomes more widespread.

“The demand for PHEV among employees via novated leasing has increased dramatically over the past 12 months,” Mark Telfer, Executive Director at Inside Edge Novated Leasing, told CarSauce.

“Whilst this demand was primarily driven by the taxation benefits, the fact that the PHEVs are available in the most popular vehicle categories of medium SUVs and dual cab utes, translated into both fuel economy and vehicle performance contributing to the purchasing choice,” he said.

“We continue to be surprised by the broad knowledge of the difference between PHEV and hybrid vehicles, and the logic many clients apply to a PHEV being their stepping stone to an EV.”

Between 2023 and 2024, PHEV sales increased by more than 100 per cent.

Within the first two months of 2025, the number of PHEVs sold equated to almost 60 per cent of those sold in the entire calendar year of 2023.

However, Mr Telfer says the change in FBT status for PHEVs may not have as significant an impact as many assume.

“Whilst it may be inferred that the end of the FBT exemption for PHEV will see a drop in sales, the demand is likely to continue for another reason.

“From January 1 this year, mandatory climate-related financial disclosures were introduced for large business and their directors,” Mr Telfer explained.

“These obligations will be imposed on smaller businesses in following years. For any business running a fleet, an easy reduction in reportable emissions could be gained through a switch from petrol/diesel/hybrid [vehicles] to PHEVs.”