Small business owners across Melbourne are asking the same question: can they access the electric vehicle FBT exemption? The answer depends almost entirely on how the business is structured and whether the owner is genuinely employed. Getting this wrong — in either direction — is a common and costly mistake.
Who can actually access the EV FBT exemption as a business owner?
Business owners can usually access the EV FBT exemption only where a company or trustee genuinely employs them and provides the car as an employee benefit.
The exemption under the Fringe Benefits Tax Assessment Act 1986 applies to benefits provided by an employer to an employee. For small business owners, this turns entirely on entity structure and whether a genuine employment relationship exists.
A business owner may access the exemption where the employing entity is a company, or where the trustee of a trust genuinely employs the owner and runs payroll correctly. In both cases, the entity must have an active payroll function, withhold PAYG, and document the employment arrangement in writing. An informal arrangement or owner drawings are not sufficient.
A sole trader sits entirely outside this framework. There is no separate employing entity, so there is no FBT relationship. A sole trader is outside the FBT framework and should instead consider ordinary deduction, depreciation, GST, and motor vehicle rules based on actual business use. If simplified depreciation applies, the instant asset write-off and car-limit rules also need to be checked separately — for 2025–26, the small business instant asset write-off threshold is $20,000, and the car limit for depreciation purposes is $69,674.
For a full analysis of how your business structure affects tax outcomes, our guide on company structure in Australia and our overview of sole trader structure — pros, cons and tax implications cover the key considerations.
Which electric vehicles qualify for the exemption in 2025–26?
Eligible battery EVs and hydrogen fuel cell cars qualify if first held and used from 1 July 2022, and no luxury car tax has ever been payable on their importation or sale.
The practical test for most vehicles is the fuel-efficient car threshold. For 2025–26, that threshold is $91,387 — cars below this value have not had luxury car tax applied, and are therefore eligible provided all other conditions are met.
Associated car expenses can also be exempt where they relate to an eligible electric car. The ATO expressly includes registration, insurance, repairs, maintenance, and electricity used to charge the vehicle — a material practical benefit for business owners, packaging the full cost of vehicle ownership.
From 1 April 2025, plug-in hybrid electric vehicles (PHEVs) are no longer generally eligible. Transitional treatment may apply where there was a financially binding commitment in place before 1 April 2025, and the vehicle was already exempt before that date. Any existing arrangement involving a PHEV should be reviewed in light of this change.
What business structures are usually not suitable?
Sole traders and informal owner-draw arrangements are generally outside the FBT framework — the exemption requires a genuine employer-employee relationship backed by payroll.
Understanding where the exemption does not apply is as important as knowing where it does. The following structures are typically not suitable:
Sole trader — No separate employing entity exists. The owner and the business are the same legal person. FBT requires a distinct employer–employee relationship, which a sole trader cannot have with themselves. See our detailed guide on sole trader structure in Australia for the broader tax implications of operating as a sole trader.
Informal drawings from a company or trust — Where an owner takes drawings rather than a salary, there is no payroll function and no employment arrangement. The FBT rules require genuine salary and wages treatment to establish the employer–employee relationship.
Trust — without proper payroll — A trust may be a suitable structure for accessing the electric vehicle FBT exemption, but only where the trustee genuinely employs the business owner as an employee, documents the employment arrangement, and operates payroll correctly, including PAYG withholding. The FBT regime applies to benefits provided by an employer to an employee, so a trust that merely makes beneficiary distributions, without a real employment relationship, will generally not be suitable.
Likewise, a passive or bare trust structure will usually not support the exemption. Our guide on how trusts work in Australia explains the employment and distribution mechanics in more detail.
Company — owner on salary — This is the cleaner structure for most small business owners seeking to access the exemption. The company is the employer, the owner is the employee, and the FBT rules apply in the ordinary way.
How does the arrangement work for a company or trust structure?
The entity enters a novated lease or provides the car directly, deducts otherwise deductible costs, and calculates whether the exemption removes the FBT liability.
There are two main approaches for small business owners operating through a company or trust.
The first is a novated lease, where the owner-employee enters a lease and the business makes payments under a salary-sacrifice arrangement. This reduces the owner's pre-tax salary and removes the FBT cost where the exemption applies.
The second is a company-owned or trust-owned vehicle provided to the owner-employee for private use. The entity owns the vehicle, claims deductions for otherwise deductible lease and running costs, and provides the car as a fringe benefit. The EV exemption removes FBT liability; it does not, by itself, deny the employer a deduction for otherwise deductible lease and running costs.
The interaction between the FBT exemption, GST input tax credits, and the income tax deduction needs to be considered as a package. Our business tax services include this type of integrated modelling for SME clients.
What reporting obligations apply even when FBT is exempt?
Even where no FBT is payable, the employer may still need to calculate and report a reportable fringe benefits amount on the employee's income statement or payment summary.
This is the most frequently misunderstood aspect of the EV exemption. Exempt status under the FBT rules does not mean the benefit disappears for all purposes.
Where an EV benefit is exempt, the ATO still requires the employer to calculate the notional taxable value of the benefit. Where the relevant taxable value exceeds $2,000 for the FBT year, a reportable fringe benefits amount (RFBA) must be reported on the employee's income statement. The RFBA is not itself taxed, but it is included in income tests relevant to:
- Medicare levy surcharge thresholds
- Study and training loan repayment income (HECS-HELP)
- Private health insurance rebate income tests
- Some government benefit and payment eligibility calculations
For a business owner drawing a modest salary, this reporting can have material downstream effects. The arrangement should be modelled against the owner's full income picture before implementation — not just against the FBT saving. Our tax planning services include pre-implementation modelling for arrangements of this type.
Staying across FBT year-end deadlines and obligations is also important — our guide on key ATO due dates covers FBT, BAS, PAYG, and super lodgement timelines in one place.
What does a compliant arrangement look like for a small business owner?
Confirm the entity structure, document the employment relationship, execute the deed before deductions start, and calculate RFBA at FBT year-end.
A sound implementation sequence for small business owners is as follows:
- Confirm the entity structure. The business must operate through a company or trust, the owner must be a genuine salaried employee, and payroll must be active. If payroll obligations are new to your business, our guide on payday superannuation and employer payroll obligations is a useful starting point.
- Check the vehicle. Confirm the car type (battery EV or hydrogen fuel cell), verify no LCT has been paid, and check the first-held and first-used date.
- Document the employment arrangement. The salary-sacrifice or vehicle provision agreement must be in writing and executed before the arrangement commences. Payroll deductions must be supported by a genuine written employee agreement.
- Align payroll and FBT records from the first affected pay period. The entity's payroll should correctly reflect the arrangement before deductions start.
- Calculate and report RFBA at year end. The notional taxable value must be calculated for each FBT year, regardless of exempt status, and reported on the income statement or payment summary, as required.
- Review annually. Thresholds, ATO guidance, and the owner's personal income position can all change. Our small business tax compliance services include an annual FBT review as part of ongoing compliance support.
Key compliance points for small business owners
- Confirm the employing entity is a company or a trust with genuine payroll — sole traders are not eligible.
- Verify the vehicle qualifies: battery EV or hydrogen fuel cell, first used from 1 July 2022, no LCT ever paid.
- PHEVs are not eligible from 1 April 2025 — review any existing arrangements.
- Execute the salary-sacrifice or vehicle provision deed before deductions commence.
- Calculate notional taxable value and report RFBA on the income statement or payment summary where the relevant amount exceeds $2,000.
- Model the RFBA impact against income tests — MLS, HECS-HELP, private health rebate — before implementing.
- Check the car-limit and instant asset write-off rules separately if the business also uses simplified depreciation.
To discuss whether an EV arrangement is appropriate for your business structure, contact us or reach our team at enquiry@42advisory.com.au · +61 3 9997 7081 ·
The information provided is general in nature and does not constitute specific tax, legal, or financial advice. We recommend seeking professional advice tailored to your individual circumstances.