FBT Exempt Electric Cars

Summary

Legislation has received Royal Assent on 12 December 2022, which allows a Fringe Benefits Tax Exemption for fringe benefits relating to electric cars, subject to certain conditions.


A car fringe benefit will be classified as an exempt benefit if the following conditions are satisfied:

a) The benefit is provided in the course of employment for a current employee 

b) The car is a zero or low emissions vehicle when the benefit is provided, and

c) The value of the car at the time of its first retail purchase is below the luxury car tax threshold for fuel efficient vehicles ($89,332 in 2023-2024).


This legislation aims to exempt cars that are zero or low emission vehicles, from fringe benefits tax, that are held by employers and made available for private use to their employees.


Zero and Low emissions vehicles

A zero or low emissions vehicle is defined as either: 

~ A battery electric vehicle: a motor vehicle that uses only an electric motor and is not fitted with a fuel cell or internal combustion engine.

~ A hydrogen fuel cell electric vehicle: a vehicle that uses an electric motor, is equipped with a fuel cell for converting hydrogen to electricity and is not fitted with an internal combustion engine.

~ A plug-in hybrid vehicle: a vehicle that uses an electric motor, takes and stores energy from an external source or electricity, and is fitted with an internal combustion engine for the generation of electrical energy.


NOTE: plug-in hybrids will not be deemed a zero or low emission vehicle from 1 April 2025, and thus this exemption will no longer apply for these vehicles from this date, unless the vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of this vehicle after 1 April 2025.


When will this exemption apply?

This legislation applies to fringe benefits arising after 1 July 2022, for zero and low emission cars first held and used after 1 July 2022. Zero and low emission cars held and used prior to 1 July 2022 are not eligible for this exemption.


Purchases of second hand zero and low emission vehicles may be eligible for the exemption, as long as they were first purchased new on or after 1 July 2022.


Example of potential annual saving for employer:

Description Detail/Calculation
FBT method used Statutory Formula Method
Eligible Electric Car Cost $44,990*
Taxable Value where no exemption $8,998 ($44,990 x 20% Statutory percentage)
FBT Liability $8,797.29 ($8,998 x 2.0802 x 47% FBT rate)
FBT Liability where Electric Car exemption applied Nil
Annual saving for Employer $8,797.29

*Based on the cheapest electric vehicle currently available in Australia.


Reportable Fringe Benefits

Although eligible electric vehicles are exempt from FBT for the employer, the value of the fringe benefit provided to the relevant employee must still be calculated, as it is to be included in the employees ‘Reportable Fringe Benefits Amount’ (RFBA) when lodging their income tax return for the relevant period.


Although the employee will not be directly taxed on this amount, it may have implications for the employee regarding their HELP debt repayment calculations, child support, private health care, or their eligibility for family assistance payments which should be considered.


Salary Sacrificing Arrangement

This new legislation allows employees to Salary Package an eligible electric vehicle which will provide a substantial tax benefit to the employee. This arrangement involves the employer paying for the employee’s car lease payments and running costs through the employee’s pre-tax earnings.


Although this will reduce the employee’s take-home income, it is a more tax-effective alternative to the employee receiving their regular income and paying for an electronic vehicle out of post-tax earnings. As a result, this could be an effective tool to attract and retain employees. An example of this can be seen below which uses an employee earning $150,000 gross income per year:

No Salary Packaging Salary Packaging
Total Remuneration $150,000 $150,000
Less: Salary Sacrificed Car & Running Costs (pre-tax) Nil ($25,000)
Adjusted Salary $150,000 $125,000
Less: PAYG Withholding (2023 rates including Medicare Levy) ($43,567) ($33,817)
Net Take Home Income $106,433 $91,183
Electric Car Costs (post-tax) ($25,000) Nil
Net Take Home Income $81,433 $91,183
Savings for Employee $9,750

Administration & Compliance

Although a good tax saving, providing these fringe benefits will create additional administration and FBT compliance requirements for the employer. Good records must be kept and calculations made annually for inclusion of Reportable Fringe Benefits on the payroll. It is recommend that employers lodge an FBT return where they have provided an electric vehicle to an employee even though the taxable value is nil.


Electricity – impact of installing charging unit and/or charging the electric car at the employee’s home

The purchase and installation of a home charging station is not a car expense associated with providing a car fringe benefit. This means that these costs will not come under the electric car fringe benefit exemption. These costs may be subject to fringe benefits tax as a property fringe benefit or expense payment fringe benefit if it is the employer who bears these costs. These property or expense fringe benefits are not exempt.


When it comes to charging an electric car at an employee’s home, there is little guidance on this area. The ATO have confirmed that a vehicles fuel costs include electricity to charge electric cars. The main issue that arises is being able to measure the monetary value of electricity that has been used to power the electric vehicle. Without a separate meter which specifically measures electricity consumption used to charge the vehicle, is it near impossible to determine this value. The ATO has released guidance whereby ‘fuel’ costs for an electric car (from 1 April 2022 onwards) can be calculated at a rate of 4.20 cents per km travelled. This will make reimbursing the employee for these costs (if relevant), and calculating the RFBA that is required to be included in the employee’s income tax return, much simpler.

Discuss Further?

If you would like to discuss this, please get in touch.

Disclaimer

The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.

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