CA ANZ has welcomed the Government’s decision to transition away from the 100% fringe benefits tax (FBT) exemption for eligible electric vehicles (EVs) and move to a more sustainable concessional approach. The exposure draft legislation proposes replacing the full exemption with a 25% FBT discount, while preserving transitional treatment for some existing arrangements.

CA ANZ supports policy settings that provide certainty, allow orderly transition and avoid unnecessary complexity. This is particularly important for tax practitioners advising employers and employees on salary packaging, novated leases and the interaction between FBT rules and employment changes.

The submission argues that entering into an EV leasing arrangement is a substantial financial commitment made on the basis of the law and policy settings in place at the time. Budget Paper No. 2 recognised this by announcing transitional provisions for people who entered, or will enter, relevant car leasing arrangements before 1 April 2029. It stated that eligible electric vehicles would retain the FBT discount rate that applied when the arrangement commenced.

“Genuine existing EV lease arrangements should not be disrupted by ordinary employment changes or restructures”

However, CA ANZ is concerned that the draft legislation and explanatory memorandum take an overly legalistic approach to when an existing commitment continues. The draft materials suggest that transitional treatment may cease in circumstances such as a change in employer, a transfer within the same corporate group or between government departments, or the addition of accessories that increase lease payments.

CA ANZ considers that this approach may produce harsh and impractical outcomes. In many cases, an employee may continue in the same role, using the same vehicle under substantially the same lease, but lose the concession because of a corporate restructure, machinery-of-government change or other ordinary employment movement outside their control. These situations do not, of themselves, indicate tax avoidance or a new financial commitment.

The submission recommends a more practical transitional rule. Employees who made financial commitments based on existing law should have confidence that those arrangements will be respected until the lease expires, provided there is no material change such as refinancing, an extension of the lease term or a change to residual value. The general anti-avoidance rules remain available to address inappropriate behaviour.