By April 2025, Australian motorists will lose the opportunity to save significant amounts of money when leasing a plug-in hybrid vehicle (PHEV). This is because the exemption from the EV additional tax (FBT) for renovated lease cars for PHEVs is ending.
This is not a good outcome for anyone looking to save money on leasing a new PHEV and save money on fuel compared to a regular petrol or diesel passenger car, SUV or ute. It is also not in line with the aim of the legislation, which is to encourage cleaner cars that can emit less CO2.
Read on to find out why the government is removing PHEVs from the revamped leasing incentive scheme and why now is the wrong time to abolish PHEV incentives. But first, a brief background on PHEVs and the updated lease FBT exemption.
What is a PHEV?
PHEVs are a vehicle with both a combustion engine and a battery and electric motor(s), but unlike regular hybrids such as the Toyota RAV4, they have a much larger battery that allows them to drive many kilometers on electricity alone.
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Some models can drive almost 100 km on electric power – which for many people means that their daily commute can be completed on electric power.
The other defining feature of a PHEV is that it can be plugged into a wall socket or charger to charge the battery.
What is the FBT exemption?
EVs and PHEVs are exempt from the FBT if they cost less than the Luxury Car Tax (LCT) threshold for economy vehicles, which is currently $91,387.
The FBT exemption for electric vehicles with a renewed lease contract means that you can drive a significantly more expensive electric car for the same cost as a much cheaper petrol car.
To quote the National Automotive Leasing and Salary Packaging Association (NALSPA): “By taking advantage of pre-tax payroll deductions, employees can reduce their taxable income, avoid GST on vehicle purchases and operating expenses, and benefit from a stable, predictable payment structure.”
The Australian Financial Review even calls it a legitimate tax minimization practice.
NALSPA CEO Rohan Martin gives a real-world example with a popular Tesla:
“Eliminating the benefits tax on a $50,000 low- or zero-emission car could save an employee about $4,700 annually,” he said.
“The exemption makes owning and driving a Tesla Model Y, which costs $64,000, cheaper than a $40,000 gas-powered Mazda CX-5. In addition, drivers save even more on operating costs by avoiding fluctuating fuel prices.”
Note that since we discussed this with Mr Martin, a Model Y is now even cheaper, between $58,715 and $62,553, depending on your state and territory.
Why is the PHEV FBT exemption?
In a word: politics. The government actually did not want this scenario to occur. The approaching April 1 end date for the EV-FBT exemption for PHEVs came about as a compromise to get the updated FBT leasing legislation through Parliament to become law.
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Prices correct as of March 2024
In the absence of Liberal/National votes, the government needed cross-bench support. The final outcome of the negotiations was that PHEV vehicles would be classified as EVs from the date the legislation came into effect on July 1, 2022, but only until April 1, 2025. After that, only pure electric vehicles (also called BEVs) would benefit of the FBT exemption. .
The end goal was a rapid transition to BEVs. The old argument against the plug-in hybrid was that some foreign studies showed that many companies’ PHEVs could not be connected much.
This was because the employees driving the vehicles usually had a fuel card, which meant they didn’t pay anything for fuel anyway. However, most would have to pay out of pocket to charge at home, if charging at home were possible.
Why PHEVs are here to stay
PHEVs should be included in the updated leasing incentives for another three or four years. This is for a number of reasons, including that it helps manufacturers achieve their new government-mandated vehicle efficiency standards, while also helping those who regularly travel to regional Australia where charging infrastructure is not as widespread.
The main reason, however, is that there are no pure electric vehicle options for entire vehicle segments in Australia.
Unlike North America, for example, there is not yet a choice of large, purely electric SUVs and utes*. This is despite the large SUV, 4WD and ute segment generating huge sales here. In fact, electric vehicles in this category have so far been expensive even in North America, so even if they were available here, most would still not qualify for the current FBT exemption.
Australian motorists have only recently been able to register expressions of interest for the first PHEVs to appear in this segment, the Ford Ranger and BYD Shark.
Given the current state of the market, encouraging PHEVs is the only option for these types of vehicles if buyers want affordable access to cleaner technology and lower fuel bills. Remember, a high-quality plug-in hybrid ute can easily save a few hundred dollars a month on fuel – and emit less CO2!
Sales of PHEVs are now on the rise, with figures from the Federal Chamber of Automotive Industries (FCAI) showing an increase of more than 120 percent in the first nine months of this year, compared to the same period in 2023.
Given this trend, and with these large 4WD PHEVs closing in, it doesn’t make sense for incentives for cleaner vehicles to disappear at the same time.
Until the advent of much higher energy and affordable batteries can give large, pure EVs a driving range comparable to ICE vehicles, the only way to reduce emissions from these larger, heavier vehicles will be to buy vehicles with PHEV technology.
To quote NALSPA CEO Rohan Martin again: “Every PHEV purchased reduces Australia’s total transport emissions and that is critical to our journey to net zero.”
The journey to the net zero component is important because this is where the old argument that people don’t connect carries less weight today.
There are simply many more private buyers of utes in Australia than in the European markets where the previous surveys were conducted – and most of these buyers would be happy to pay less for expensive fuel.
Even with today’s commercial vehicles, owners are looking to reduce fleet costs and meet ESG goals, something innovative leasing of cleaner vehicles can help achieve.
If there were an obligation to reimburse drivers for charging costs, even fewer drivers in this country would have charging problems.
There should also be fewer issues accessing residential charging in Australia. This is due to lower levels of potentially troublesome apartment ownership (which can cause problems with access to charging) than European surveys have shown.
By removing incentives for PHEVs next year, the government will ensure that fewer people can afford vehicles that can reduce CO2 emissions and lower fuel bills.
For buyers of small to mid-size SUVs and sedans, this is less of an issue as there are plenty of affordable BEV options.
However, removing incentives from entire market segments without a selection of BEVs to choose from will only result in more people buying the cheaper, dirtier vehicles, which is definitely not in the spirit of the original legislation.
*LDV eT60 excluded, but with a range of almost $100,000 and a driving range of 330 km, unladen, and a towing capacity of 1000 kg, this is not a true replacement for segment benchmarks
MORE: What is renewed leasing and how does it work?
