Tax Benefits of Electric Vehicles

Understanding the FBT Exemption for Electric Vehicles

Employers can take advantage of the Treasury Laws Amendment (Electric Car Discount) Bill 2022 which provides an exemption from Fringe Benefits Tax (FBT) for employers that acquire “environmentally friendly” motor vehicles for use by their employees.

FBT is a flat-rated tax of 47% imposed on the taxable value of a benefit provided by an employer to an employee.  With respect to motor vehicles, the taxable value is the value of the personal use of the motor vehicle by the employee as permitted by the employer.  Business or work use of the motor vehicle by the employee is not subject to FBT.

The exemption from FBT seeks to encourage employers to acquire “environmentally friendly” motor vehicles for their business fleets.  We use the term “environmentally friendly” as the FBT exemption is targeting both zero and low-emission vehicles.

The FBT exemption specifically concerns “car fringe benefits”, with the term “car” being more tightly defined than a motor vehicle.

What are the Criteria for FBT Exemption of Electric Vehicles?

The exemption applies where the following criteria are satisfied:

• The car must be a zero or low-emissions vehicle, which includes:
  • Battery electric vehicles;
  • Hydrogen fuel cell electric vehicles; or
  • Plug-in hybrid electric vehicles.
• The car must use one or more electric motors for propulsion;
• The car must be fuelled by either an off-vehicle electrical power source, a battery, an electric generator, a hydrogen fuel cell, or a combination of these;
• The car’s value as at the first retail sale must be below the fuel-efficient vehicles’ luxury car tax threshold, being $89,332 in the 2023/24 income year

Other issues for consideration under the FBT exemption are as follows:

• Novated lease arrangements are eligible.
• The value of the exempt car benefit must still be reported by the employer.  This can have flow on effects to an employee and their ability to access personal concessions, benefits and offsets.
• Plug-in hybrid cars cease to the eligible for the FBT exemption from 1 April 2025.

Customs Tariff Reduction

As a further incentive for businesses to acquire a fleet of electric vehicles, the customs tariff rate with respect to the importation of electric vehicles has been reduced from 5% to 0%.

This reduction in the customs tariff rate has been given effect via the Notice of Intention to Propose Customs Tariff Alterations (No 6) 2022, issued by the Minister for Home Affairs pursuant to the Customs Act 1901.

Example

Your business is carried on via a company structure and you are paid a wage by the company as an employee.

Your taxable income for the 2023 income year is $250,000.  You pay tax of $88,167, which includes Medicare levy.  Your after-tax position is $161,833.

If you acquire an electric vehicle in your personal name for $61,833 (GST inclusive), you will not be able to claim deductions (depreciation) with respect to the vehicle.  You are also paying for the vehicle out of post-taxed earnings, leaving you with post-taxed earnings of $100,000.

Given the FBT exemption, the company could acquire the electric vehicle and provide it for your personal use without FBT consequences.  Further, the company would be able to claim in the 2023 income year:

• The cost of the vehicle (excluding the GST) as an immediate deduction under the full expensing of depreciating assets measure (but only if the vehicle was acquired before 1 July 2023);
• The GST which forms part of the purchase price for the vehicle.

The net result is that:

• The cost of the car to the company (cash-flow) is approximately $55,000, as the GST is claimable.
• Your wage will likely decrease by $55,000 to $195,000.
• Tax on $195,000 is $62,317 (including Medicare), leaving you post-taxed earnings of $132,683.
• Your post-taxed earnings have therefore increased by $32,683 and you still have full use of the electric vehicle.

Need further clarification?

We understand that tax is not for everyone, so Perks Tax Consulting Team are here to help you navigate the FBT exemption and maximise its value for your business. Get in touch with Neil Oakes, Director, Tax Consulting.