For business owners, the question is usually not, “are EVs the future?”.
It’s, “will this save me money, make my life easier, and can the tax system please, for once, be helpful?”
Here’s the practical version.
Not all “electric-ish” cars are treated the same.
Battery electric vehicles (EVs) run fully on electricity.
Traditional hybrids use a mix of petrol and electric power, but you don’t plug them in.
Plug-in hybrids (PHEVs) can be plugged in and run partly on electricity, but they still have a petrol engine.
That distinction matters because the tax treatment is very different.
This is the obvious one. Electricity is generally cheaper than petrol per kilometre, and EVs also tend to have lower servicing costs because there are fewer moving parts, no oil changes, and less mechanical fussing about. Hybrids can also reduce fuel spend, especially for stop-start suburban driving.
This is the big tax headline. 👇
If an employer provides an eligible electric car to an employee for private use, there can be an FBT exemption.
This includes a company or trust providing vehicles for directors/shareholders/trust beneficiaries.
If your driving is regular, local, and you can charge at home or the office, EVs can make a lot of sense.
Quiet driving, lower running costs, fewer servo stops. It’s all a bit civilised.
Very little of the “standing in a petrol station buying a regret sausage roll at 7:10 am” lifestyle.
This will matter more to some businesses than others, but it is still worth mentioning.
For some owners, it lines up with personal values. For others, it supports ESG goals, tender requirements, employer brand, or client expectations.
Sometimes it is about saving the planet. Sometimes it is about not looking like you missed the last ten years.
Even though prices are improving, EVs can still cost more to buy than an equivalent petrol car. And if you’re looking at a premium model, tax concessions do not magically turn a luxury purchase into a bargain.
If you can charge easily at home or work, great.
If you can’t, the romance can cool off fairly quickly. Public charging is improving, but depending on where you live and drive, it can still be a bit patchy.
Nothing says futuristic transport quite like waiting 40 minutes in an industrial car park next to a locked carpet warehouse.
For regional drivers, heavy road users, or people towing regularly, charging time and range can still be a practical issue.
Some businesses don’t need the cheapest car to run. They need the least annoying one to operate.
EV technology is changing quickly, which is great for the market but can make owners slightly nervous.
Nobody loves the feeling of buying the latest model only to discover next year’s version charges faster, drives further, and basically makes yours look like a first-gen plasma TV.
Traditional hybrids reduce fuel use, but they usually miss out on the flashier EV tax treatment.
Plug-in hybrids used to have a stronger tax story, but that has narrowed sharply. More on that below.
This is the big tax headline. 👇
Normally, if your business gives you a car and you use it for private driving too, the business may have to pay FBT.
FBT is an extra tax for employers. With some electric cars, that extra tax does not apply.
The key eligibility criteria are as follows:
· the car is a zero or low emissions vehicle
· it is first held and used on or after 1 July2022
· it is provided to a current employee or their associate
· luxury car tax has never been payable on that car. In normal people terms, this means the vehicle’s GST-inclusive value needs to stay at or below the relevant LCT threshold (currently $91,387) at the time it is first sold in a retail sale. If the price goes over that threshold and LCT is payable, the EV will not qualify for the FBT exemption. If someone buys the car second-hand, it also needs to have stayed below the threshold in any earlier sale where that test applied.
Important catch ☝️
Even if you are eligible for the FBT exemption, the benefit is still generally a reportable fringe benefit amount, even though no FBT is payable. That can affect things like Medicare levy surcharge, HELP repayments, and other income-tested calculations for the employee.
So yes, it is a great concession. No, it is not magic. It still comes with fine print.
Naturally.
The ATO allows a practical method for working out home charging electricity costs under PCG 2024/2, which helps with FBT and income tax calculations where relevant.
That does not mean record keeping disappears. Let’s not get silly.
It just means it is less painful than it used to be, which in tax world counts as a wild celebration.
For business-use vehicles, you can still claim the usual deductions for business-related running costs and depreciation, subject to the normal rules. That applies whether the vehicle is electric, hybrid or petrol.
If the vehicle is used partly for private purposes, only the business-use portion is deductible. Which is not exactly a shocking twist, but still worth saying out loud before someone gets too creative.
This is the big misunderstanding.
A standard hybrid that runs on petrol plus electric power, but is not plug-in, does not qualify for the electric car FBT exemption.
So yes, it may save fuel. No, it does not get the same tax love as a qualifying full EV.
This changed, and plenty of people have not caught up.
From 1 April 2025, a plug-in hybrid electric vehicle is generally no longer eligible for the electric car FBT exemption.
There is a limited grandfathering rule where a PHEV was already exempt before that date and there is a financially binding commitment that continues. So for most new arrangements now, the old PHEV tax advantage is gone.
Even if the business buys an expensive EV, the tax deduction is not unlimited.
For the 2025–26 income year, the car limit for depreciation is $69,674.
That is the maximum value you can use to calculate depreciation for a car first used or leased in that year for business purposes. This is also the limit for claiming GST credits.
In plain English, buying a more expensive car does not mean you get a more exciting deduction.
The ATO has thought of that. They always do.
Here’s the practical takeaway:
A plug-in hybrid is no longer the obvious tax sweet spot it once was, unless an older qualifying arrangement is already in place.
The tax rules can make an EV look very attractive. And in the right setup, it absolutely can be.
But this is where people get themselves into trouble.
They hear “FBT exemption” and suddenly we’re all acting like the tax office is handing out free Teslas in the car park.
It is still a car.
You still need to look at the purchase price, the LCT threshold, the depreciation limit, the GST cap, the business use, and whether the numbers actually work in real life.
The tax benefit is real. It is just not the whole story.
A good EV purchase is one where the car suits the way you drive and the tax settings stack up. 😎
Because a tax saving is great.
Buying the wrong car to get it is not.
– The team at PAL (making accounting slightly less boring since way back when)
Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!
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