Tax breaks on PHEVs end soon: Here's what you need to know
The Federal Government’s zero Fringe Benefits Tax incentives on plug-in hybrids finish in just a few months, and getting the maximum benefits from this scheme means you need to take action now.
Full battery EVs enjoy the zero-emissions limelight, but lately there’s been spectacular growth in plug-in hybrid sales in Australia, albeit occurring without much attention.
From just over 1200 plug-ins sold nationally in the first half of 2021, sales have increased six-fold to almost 8000 plug-in hybrids, in the first half of 2024.
PHEVs might only make up roughly 1.4 per cent of the total market share compared to the 7.4 per cent share full battery-EVs enjoy, but they offer a multi-purpose operational functionality that combustion-only and electric-only vehicles miss out on. Essentially, you get the convenience of charging at home (which is personal time you get back in your life), and you can utilise the broad practicality of the existing liquid fuel network.
Part of the aforementioned growth is doubtless fuelled by Federal Government novated leasing incentives.
Put simply, if you salary sacrifice a plug-in hybrid (or full battery EV), there’s zero FBT to pay, provided that vehicle comes in under $91,387 in this 2024-’25 financial year. (This is the official Luxury Car Tax Threshold for ‘green’ cars.)
You can also sidestep up to $6334 in GST, and use some of the money you’d otherwise pay in income tax to fund the lease.
This is a huge incentive package, but the zero-FBT aspect is drying up - for plug-in hybrids at least - from April 1, 2025. And the way they’re killing it means that now is the time you must act, if you want a plug-in hybrid, and you want to the zero-FBT for as long as possible.
Basically, you need to get your financial ducks in a row now, so that you can secure the vehicle and have the lease up and running before the April 1 deadline in 2025.
WHAT WOULD A NOVATED LEASE ON A PHEV COST YOU?
To illustrate this point, AutoExpert asked Novated Lease Australia for a generic quote on a Mitsubishi Outlander plug-in, in ‘Exceed’ spec.
The Outlander is a solid seven-seat SUV with good styling and a lot of luxury, and I did also thrash one in the Flinders Ranges with them, so it’s got definite family adventuring cred. (If you’re interested in that report, click here >>).
Click to enlarge
Bottom line, as you can see (right), under a novated lease it’s less than $230 a week out of your take-home pay. That’s for a five-year term, 15,000 kays a year, on a $100k salary, and just over 28% residual to pay at the end of the lease.
That’s fully maintained, including maintenance, tyres and fuel.
This is a $75,000 car, right? (Drive-away.) For less than $230 a week out of your take-home pay. That’s the power of government incentivisation, right there.
The non-plug-in equivalent Outlander is about $58k, drive-away, and it would be pretty hard for most people to swing that vehicle for $230 a week, outside the novated leasing domain, I’d suggest.
Novated leases typically level the playing field on ‘green car’ acquisition, by removing the price premium over their combustion-only counterparts. But the details really matter, and the dudes at NovatedLeaseAustralia can help you out there. I’ve known the founders for years - they’re good blokes. NovatedLeaseAustralia.com.au
The zero-FBT benefit is evaporating on plug-in hybrids on April fool’s 2025. But it will continue if you get your novated lease in place prior to that date. This is critical.
So, if you establish your novated lease on a new plug-in hybrid before April 1 2025, you will continue to enjoy that zero FBT benefit for the term of that lease.
Therefore, you need to put plans in place now, because there might be a wait for the plug-in hybrid of your dreams, and it would be a disaster if that lead-time delayed the acquisition until after the benefit disappears.
Timing is going to be everything here.
As the Federal Government so succinctly puts it:
From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.
However, you can continue to apply the exemption if both the following requirements are met:
1. Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
2. You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any optional extension of the agreement is not considered binding.
Pretty clearly, then, if you want to maximise this benefit, make sure you establish your novated lease on your new plug-in hybrid comfortably prior to April 1, 2025, and go for a somewhat lengthy term (as long as that fits in with your other goals)
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If you’re on the fence, or in the dark, about the distinction between plug-in hybrids and full battery EVs, and what that means operationally, and which way you should go, I see it like this:
Battery EVs suit some people, but they can be very inconvenient for others. For example, if you can’t park off the street, charging can be a total pain.
If you can charge at home, great. But if you’re wholly reliant on public chargers, this might get old, especially for regional travel, where the charger network is fragile.
Chargers are often down for maintenance or reliability reasons. There can be significant queues during peak holiday periods. The app-based connection to invoke charging can be clunky - especially if you are on the fringes of mobile service coverage in the regions.
Frankly, it can be a burden to operate a full battery EV, at least for some. But with a plug-in hybrid, you can run in EV mode for short commutes, for example from home to the office and back, and you can also run endlessly on petrol for longer regional drives.
Being in a plug-in can remove a lot of the anxiety EV drivers often feel in these situations. And it certainly reduces the burden of planning on longer trips.
However, if you really want to maximise the benefit of plug-in hybrid ownership, you should plug in as often as possible so you can enable those shorter commutes in EV-only mode.
So, if you’re forced to park on the street, or in an apartment complex that hasn’t upgraded the parking arrangements to facilitate tennants’ electric dreams, this could still be something of a problem.
What this means is: If the operational aspects are compatible with the driving you need to do, and your living arrangements, a plug-in hybrid can be a great option. And if you want maximum tax saving, don’t forget the April 1, 2025 zero-FBT D-day.
Thanks very much to NovatedLeaseAustralia.com.au for assisting with this report.
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