Electric Vehicles Exempt from FBT
Electric vehicles (EVs) will be Exempt from Fringe Benefits Tax (FBT), subject to certain requirements.
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 has now passed both Houses of Parliament and received Royal Assent on 12 December 2022.
From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses.
Here are the Main Points:
- To be eligible for the exemption, the car must be classified as zero or low emissions, i.e. battery electric vehicles, hydrogen fuel cell electric vehicles and plug-in hybrid electric vehicles
- Applies to fringe benefits on an eligible vehicle that is first held and used on or after 1 July 2022
- The EV must be priced under $84,916, the luxury car tax threshold
- If the EV was purchased before 30 June 2022 but wasn’t delivered by this date, it might still be eligible for the exemption
- The FBT exemption can also apply to second-hand electric cars.
What is Fringe Benefits Tax?
Many employers provide vehicles to employees in respect of their employment. Where the vehicle is made available for the employee’s private use, an FBT liability is likely to arise for the employer, unless it is exempt from FBT.
How does this exemption benefit the Employer?
The estimated FBT savings for an employer who provides an electric car to an employee and qualifies for the FBT exemption provided below:
|Item||Amount / Details|
|FBT valuation||Statutory Formula method|
|Electric car cost||$60,000|
|FBT Taxable value where no FBT exemption exists||$9,600|
(calculated as $48,000 x 20% statutory fraction)
|FBT liability where no FBT exemption exists||$9,385.86|
(calculated as $9,600 x 2.0802 x 47%)
|FBT where electric car exemption applies||$Nil|
|Employer FBT saving||$9,385.86|
How does this exemption benefit an Employee?
Where an employee enters into a novated lease arrangement, or otherwise agrees to financially contribute towards the provision of a car fringe benefit, some or all of the employee contribution will typically be made from after-tax salary.
For electric cars that qualify for this exemption, the total contribution made by an employee may now be made from pre-tax amounts. This change is expected to provide significant tax savings for the employee due to reduced taxable income.
|Details||Without salary sacrifice|
|With salary sacrifice|
|Less: Salary sacrificed car & running costs (pre-tax)||0||(25,000)|
|Less: PAYG Withholding*||(40,567)||(31,317)|
|Electric car costs (after-tax)||(25,000)||0|
|Savings for the employee||$9,250|
Reportable Fringe Benefits Amounts
As a requirement of the FBT exemption, an exempt electric car will be included in the calculation of an employee’s Reportable Fringe Benefit Amount (RFBA).
Whilst an employee does not pay income tax on an RFBA, it will be included as part of the employee’s tax return and will be taken into account for the calculation of items like government entitlements and welfare, HECS repayments, Division 293 income for superannuation.
Charging the Vehicle – FBT implications
A car expense is defined for FBT purposes to include fuel. The ATO has confirmed in its recent guidance that fuel which includes ‘electricity to charge and run electric cars’, constitutes a car expense.
Employees who charge their cars at home using their own electricity may seek reimbursement. In the absence of a separate meter to measure the electricity consumption, how will an employee calculate and record the electricity costs associated with charging their electric car?
The ATO has indicated a Draft Practical Compliance Guideline should be issued around March 2023.
- Electric Cars Exemption; ATO Website: https://www.ato.gov.au/Business/Fringe-benefits-tax/Types-of-fringe-benefits/FBT-on-cars,-other-vehicles,-parking-and-tolls/Electric-cars-exemption/#:~:text=From%201%20July%202022%20employers,cars%20and%20associated%20car%20expenses.
- TREASURY LAWS AMENDMENT (ELECTRIC CAR DISCOUNT) BILL 2022; http://www5.austlii.edu.au/au/legis/cth/bill//tlacdb2022464/
- How Fringe Benefits Works; ATO Website: https://www.ato.gov.au/business/fringe-benefits-tax/how-fringe-benefits-tax-works/
- BDO Australia https://www.bdo.com.au/en-au/insights/tax/articles/electric-cars-now-exempt-from-fbt-what-this-means-for-you