FBT Exemptions for Cars
Five things you need to know
- Regulatory changes came into effect on 1 April 2025, ending the exemption for many plug-in hybrid electric vehicles (PHEVs) and affected the taxable value of car benefits for these vehicles.
- Whether the vehicle is a PHEV, a conventional petrol or diesel car, or another type of car that doesn’t qualify for an exemption, FBT calculations for cars must follow the Statutory Formula Method or the Operating Cost Method (also known as the logbook method).
- The statutory method does not consider how much the car is used privately compared to business use, so it tends to be more expensive when private use is low but is administratively simpler.
- The logbook method ties FBT liability to the actual use and costs of the car and is likely to yield a far lower taxable value when business use is high.
- Once you have a valid logbook year, the same business use percentage can be carried forward for up to five years unless vehicle usage changes significantly.
One thing you should do
Review all existing novated leases or salary packaging agreements delivered before 31 March 2025 to ensure a binding commitment remains so these still qualify for the PHEV FBT exemption.
How Herron can help
- Review the FBT status for your existing vehicle fleet.
- Identify whether the operating cost or statutory formula method is most appropriate for validating related FBT claims.
The details
Where employers provide cars to employees, it is important for them to stay up to date on how Fringe Benefits Tax (FBT) applies.
Most recently, regulatory changes came into effect on 1 April 2025 ending the exemption for many plug-in hybrid electric vehicles (PHEVs) which affected the taxable value of car benefits.
Understanding whether to calculate FBT by the statutory formula or via a logbook (operating cost) method is more important than ever.
Update on the PHEV FBT Exemption
Until 1 April 2025, certain electric vehicles, including battery electric, hydrogen fuel cell, and PHEVs, were eligible for the “electric car exemption” from FBT, making them attractive in novated leases or employer fleets.
PHEVs are now no longer classified as “zero or low emissions vehicles” for the purposes of FBT exemptions meaning the exemption no longer applies for PHEV leases or arrangements after 1 April 2025.
For existing leases or novated agreements to retain the exemption there must have been a financially binding commitment in place prior to 1 April 2025, and that commitment must continue unchanged. Any alterations to the lease or commitments after 1 April 2025, such as refinancing, extending, changing employer, or altering terms, will most likely void the exemption.
Unless they meet strict “grandfathering” conditions, many PHEVs are now taxable under normal FBT rules. Fully electric vehicles (battery-electric or hydrogen fuel cell) remain eligible for exemption dependent upon the original acquisition date and eligibility rules.
Calculating Car FBT: Statutory Method vs Logbook (Operating Cost) Method
Whether you use a PHEV, a conventional petrol or diesel car, or another type of car that doesn’t qualify for an exemption, FBT calculations must follow one of two methods:
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The Statutory Formula Method, or
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The Operating Cost Method (also known as the logbook method).
Employers (or novated lease providers) can choose which method to apply to each car, and can change from year to year.
Statutory Formula Method
This is the simpler and more commonly used method where:
- You take the base value of the car, including the original cost (purchase or lease cost), including GST, dealer delivery, accessories and options, but excluding registration, stamp duty, and other non-relevant costs
- Apply a statutory rate, which for most cars is a fixed 20%.
- Adjust for the number of days in the FBT year (1 April–31 March) that the vehicle was “available for private use.”
- Subtract any employee contributions (e.g., if the employee pays for some running costs out-of-pocket, or a post-tax payroll deduction has been made) to arrive at the taxable value.
Example:
For a $50,000 car that was available for private use all year, the taxable value would be roughly $10,000 ($50,000 × 20%).
The statutory method does not consider how much the car is used privately compared to business use, so it tends to be more expensive when private use is low. It can be administratively simpler when record keeping is challenging.
Operating Cost (Logbook) Method
The logbook method ties FBT liability to the actual use and costs of the car. It can yield a far lower taxable value when business use is high.
Key requirements of this method include:
- You track all running costs (fuel / electricity or charging, servicing, insurance, registration, repairs and maintenance, depreciation, etc.) that apply to the vehicle.
- You maintain a logbook over a continuous 12-week representative period (detailing each journey, odometer start/end, kilometres travelled, and purpose).
- The logbook establishes the business vs private use split. You then apply the business-use percentage to total costs and the remaining private-use portion becomes your taxable value.
Once you have a valid logbook year, the same business use percentage can be carried forward for up to five years unless vehicle usage changes significantly.
Where private use is a small portion of total kilometres (for example, a car used predominantly for business travel), the logbook method almost always produces a lower taxable amount.
Critical Calculation Method Choice
The end of the FBT exemption for many PHEVs means there are now real-world financial consequences for employers and employees who previously enjoyed an exemption:
- PHEVs (unless grandfathered under a binding pre-1 April 2025 commitment) will now attract FBT just like conventional cars.
- The taxable value under the statutory method may be significant, especially for newer or more expensive vehicles, because you are taxed on base cost, not actual use.
The operating cost (logbook) method may become much more attractive, especially for vehicles used mainly for business, or where private use is limited.
The method you choose (statutory vs logbook) can materially influence your FBT liability — and may mean the difference between a substantial tax bill or manageable costs.
What you can do
To manage FBT liabilities since the 2025 changes:
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Review all existing and planned novated leases or salary packaging agreements
If your fleet includes PHEVs, or you are planning to add new vehicles, check whether the lease was executed (and vehicle delivered) before 31 March 2025. Only those may still qualify for exemption provided a binding commitment remains.
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Decide on your FBT calculation method early
Once chosen, you cannot retroactively change method part-way through the year.
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For vehicles with significant business use, strongly consider the logbook method
Especially post-2025, where PHEVs default to taxable, a logbook can show actual usage, often reducing taxable value substantially.
Investing in a proper logbook (electronic or paper) and maintaining diligent records will pay dividends. Many fleet managers are now adopting electronic logbooks for ease, GPS verification and compliance efficiency.
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Be mindful of what counts as “private use”
Garaging a car at an employee’s home, or allowing any non-business travel (even minor personal errands) can trigger full FBT liability.
Herron – here to help
Now that PHEV exemptions have largely been removed, the way you calculate FBT becomes a key strategic decision.
Switching to the operating cost (logbook) method is most likely to deliver the greatest tax efficiency, especially for cars that spend most of their time on business tasks. The statutory method may be easier for simpler arrangements, or vehicles with significant private use, despite its heavier tax burden.
Don’t assume your previous arrangements still deliver FBT-free status. Review leases, choose your calculation method carefully, and keep accurate recordsif you want to minimise your FBT liability going forward.
If in doubt, or if your fleet mix includes PHEVs, battery-electric vehicles, or hybrids, we can provide tailored advice to ensure compliance and optimise your tax position.
Contact us today to talk about your vehicle fleet and FBT implications.
Michael Rashid
Accountant
Mark Herron
Principal