End of PHEV tax break in Australia as sales surge

The Fringe Benefits Tax (FBT) exemption for plug-in hybrid vehicles (PHEVs) has officially ended, as the government has allowed the policy to expire on 31 March 2025. As of April 1, 2025, a PHEV will not be considered a zero or low emissions vehicle under the FBT law and therefore not eligible for the EV exemption. However, the exemption remains in place for electric vehicles (EVs) indefinitely.

Introduced in July 2022, the FBT exemption covered all new EVs and, until now, PHEVs priced under the Luxury Car Tax (LCT) threshold for fuel-efficient vehicles (currently $91,387) when purchased through a novated lease. The scheme effectively reduced the cost of ownership by absorbing the FBT normally passed on to employees, offering substantial annual savings. These savings were likely instrumental in the popularity of plug-in hybrid vehicles, including the likes of the recently launched BYD Shark 6 ute.

While the scheme remains in effect for EVs, the government had previously set a deadline of April 2025 for PHEVs, requiring eligible vehicles to be delivered by the end of last month.

PHEV and EV sales trends in Australia

PHEV sales in Australia have been rising significantly in recent years, in part thanks to the FBT savings. Data from the National Automotive Leasing and Salary Packaging Association (NALSPA) shows that over 100,000 novated leases have been taken out for EVs and PHEVs since the scheme’s inception.

Since its launch, EV market share has climbed from 1.8% to 7.4% by the end of 2024, while PHEV sales have doubled from below 1.0% to nearly 2.0% of the market.

However, recent figures indicate a contrasting trend:

• EV sales slowdown – In the first two months of 2025, EV sales totalled 9,516, a 36.6% decline compared to the same period in 2024.
  
• PHEV surge – Over the same period, PHEV deliveries reached 6,779, marking an increase of 222.2% year-on-year. This surge could be driven partly by a rush to acquire PHEVs before the FBT exemption expired.

EV and PHEV sales in Australia, July 2022 to February 2025

What’s driving the PHEV sales boom?

The rising PHEV sales can also be attributed to an increasing variety of available models. Chinese automaker BYD, for instance, has introduced two new PHEVs – the Sealion 6 mid-size SUV and the Shark 6 ute – which have contributed to the segment’s growth.

With the FBT exemption now removed, it remains to be seen whether this upward trajectory for PHEVs will continue. Some potential PHEV buyers may now consider switching to fully electric vehicles to take advantage of the ongoing tax benefits.

The future of sustainable vehicle incentives in Australia

The removal of the PHEV tax break raises questions about the government’s long-term strategy for supporting sustainable vehicle adoption. With EV sales experiencing a slowdown, maintaining incentives for both PHEVs and EVs could have provided a broader pathway for reducing emissions while easing the transition for consumers hesitant about going fully electric. Combined with the introduction of the New Vehicle Efficiency Standard (NVES) which will likely see the costs of petrol and diesel cars go up, it may be a case of reducing the price gap through inflation rather than EVs getting more affordable through mass adoption.

As the Australian automotive landscape continues to evolve, the impact of this policy change on consumer preferences and market dynamics will become clearer in the coming months.