Electric Cars and Fringe Benefits Tax

The Australian parliament have recently introduced new legislation that will make low and zero emission vehicles free from Fringe Benefits Tax (FBT).

In Australia, electric vehicles make up just under 2% of the new car market but the sector is rapidly growing with an increase of 62.3% new electric vehicle registrations in 2020/2021.

Removing FBT from zero and low emission new car purchases is part of the Australian Government’s plan to make low and zero emission vehicles the vehicle of choice for Australian’s purchasing new vehicles. In addition to removing FBT from these car sales the government is also:

– Installing electric vehicle fast chargers every 150kms on Australian highways,
– Reducing import tariffs,
– Updating the Commonwealth car fleet to be 75% no-emission cars,
– Creating a Hydrogen Highways refuelling network, with stations on Australia’s busiest freight routes across the country.

In Australia, light vehicle sales are around 40% business vehicles. Only 0.8% of business new car purchases are electric (as of 2020). This is thought to be because of the higher cost of electric vehicles. The government is looking to reduce the cost of electric vehicles for businesses by making them FBT free.

How will the FBT exemption work for electric vehicles?

The exemption will be applied to cars that are provided from employer to employee where the following conditions are met:

On Low and zero emission cars including:
– Electric vehicles (battery),
– Electric Vehicles (Hydrogen fuel cell), and
– Electric Vehicles (Plug-in Hybrid).

Where the car was first held or used on/after 1/07/2022.

If a qualifying vehicle was ordered before the 1/07/2022 but delivered after this date the vehicle will also be eligible for this exemption. If the vehicle was delivered before the 1/07/2022 it does not qualify.

The car value is below the luxury car tax threshold on fuel efficient vehicles.

To qualify for an FBT free purchase the car at sale must be below the luxury car tax threshold for fuel efficient vehicles ($84,916 in the 2022/23 year). This sale price includes GST and customs duty but does not include service plans, stamp duty, registration or extended warranty costs associated with the vehicle purchase.

If a business electric car purchase qualifies to be exempt from FBT, then benefits related to running the vehicle for the fringe benefit period are also exempt. For example, government modelling shows on an electric vehicle purchase of $50,000, the employer would save up to $9000 a year. The value of the fringe benefit is still taken into account in the reportable fringe benefits amount of the employee and is still be reported on the employees income statement.

Can an electric car purchase be salary sacrificed?

If an electric car purchase meets the criteria stipulated above and your employer agrees, salary sacrificing an electric car purchase is allowed. Some Fringe Benefits Tax concessions will not be available under a salary sacrifice arrangement. For example, government modelling shows on an electric vehicle purchase of $50,000, the salary sacrificing employee would save up to $4,700 a year.

Where you cannot access the Fringe Benefits Tax exemption on Electric Vehicle purchases

Certain Business Structures

The Fringe Benefits Tax exemption only applies where a car is provided to an employee from an employer. Partnerships and sole traders to not qualify. For beneficiaries of a trust and shareholders of a company, the Fringe Benefits Tax exemption will only apply where it an individual’s capacity as an employee or director of the entity.

Limited to car purchases

The Fringe Benefits Tax exemption on electric vehicle purchases only applies to car purchases. Other vehicles (like vans) are excluded.

For more information on Fringe Benefits Tax exemptions please contact the team at MB Accounting for expert tax business advisory.