EVs get a lower FBT rate as the ute exemption ends: what the bill before Parliament means

Electric company cars will attract fringe benefit tax at a lower rate than petrol and diesel ones from April 2027, under a bill before Parliament that also ends the exemption that has made the sign-written double-cab ute New Zealand’s default work vehicle.

The Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill, introduced last week, is the first rewrite of the vehicle FBT rules since the tax began in 1985. It gives effect to changes confirmed in Budget 2026 and applies to benefits provided from 1 April 2027.

Three rates instead of one

For the first time the valuation rate varies by powertrain. Petrol and diesel vehicles stay at 20% of cost price a year, hybrids including plug-ins move to 19.6%, and battery electric vehicles to 17%. On the tax book value basis, used where Investment Boost has been claimed, the equivalents are 41.4%, 40.52% and 35%. The Budget had proposed lifting the standard rate to 22.8%; the bill leaves it at 20%. Inland Revenue must review the rates every four years against the AA’s running cost report and MBIE fuel price data, with the first review due by 31 March 2031.

The three-point gap between a petrol car and an EV of the same price is the first structural FBT advantage electric vehicles have had in New Zealand, and it lands as the Clean Car Discount’s absence has left fleet buyers without a purchase-side incentive.

Categories replace logbooks

Under the bill an employer chooses a category when a vehicle is provided and revisits it only if private use changes materially. A perk vehicle with full private use attracts 100% of the taxable value. A branded vehicle used mainly for business, with private use limited to days off, public holidays and commuting, attracts 35%, as does an unbranded farm vehicle used by a shareholder-employee. A branded vehicle whose only private use is commuting to a single worksite attracts 20%, and vehicles used across multiple worksites or on projects of limited duration, or run as pool cars with no private use, attract nothing. Where no category fits, the vehicle defaults to 100%. Incidental use, such as borrowing a work van one weekend to move house, is ignored, and a change of category takes effect from the next quarter.

The existing exemptions for work-related vehicles, business trips and emergency calls are repealed, with the private use of those vehicles captured in the categories instead. That removes the distinction that has made the double-cab ute the standard company vehicle for tradespeople and fleets. The change also works in reverse: a passenger car used for business can now qualify for the lower rates, where the old exemption turned on the vehicle not being designed mainly to carry people. An electric SUV or hatchback branded and used on the job is treated no differently from a ute.

Vehicles bought, leased or rented before the bill’s introduction are exempt from the branding requirement, so current stock does not need sign-writing, and Inland Revenue can waive branding where a business or role is sensitive. The FBT definition of a motor vehicle moves from a 3,500kg to a 6,000kg gross laden weight limit, bringing heavier utes under the same rules. Rental vehicles used in a hire business are excluded.

What it means

Deloitte tax partner Robyn Walker told RNZ that client feedback was that the new rules would be easier to comply with and a fairer reflection of the value of vehicle benefits, and that some employers could pay less than they do now. Inland Revenue’s own worked example, a branded ute with weekend and holiday use, currently attracts FBT on 36 days a quarter, equivalent to a 40% inclusion rate, against 35% under the new category. Revenue Minister Simon Watts described the approach at the Budget as “close enough is good enough”.

For the 2027 fleet renewal cycle, the arithmetic changes on both sides. The ute-specific exemption that has driven a large share of New Zealand’s ute sales disappears, and plug-in utes like the $58,990 GWM Cannon Hi4-T gain a modest edge at 19.6%, while battery electric vans and cars, from Ford’s $58,990 Transit City to any of the models filling the top of the registration charts, get the full three points. The bill now goes to select committee.

A version of this story first appeared on our sister outlet AutoTalk.