As of 27 July 2022, the Australian Government is introducing the Treasury Laws Amendment (Electric Car Discount) Bill 2022 to exempt cars that are provided to employees for private use with zero or low emissions from fringe benefits tax (FBT). These include battery electric, plug‑in hybrid electric, and hydrogen fuel cell electric cars.
The exemption applies to all car benefits employees have (including those associated with running the car). However, it’s important to understand the practicalities that surround compliance and what kind of proof you’ll need to claim the exemption of running costs.
Essentially, this bill benefits a number of parties: motorists, employers, and the environment. So, here’s everything you need to know about fringe benefits tax on fuel-efficient vehicles, as per the new laws.
Contents
- 1 What is Fringe Benefits Tax (FBT)?
- 2 Is Salary Sacrificing in Exchange for Eligible Electric Cars the Answer?
- 3 Why the Luxury Car Tax Threshold is a Limitation
- 4 Which Electric Vehicles Are Exempt From FBT?
- 5 What About Import Tariffs?
- 6 When is the Commencement Date For FBT Exemption Vehicles?
- 7 Which Zero and Low Emission Vehicles Qualify?
- 8 Reporting for the Exempt Car Fringe Benefit
- 9 Key Takeaways
What is Fringe Benefits Tax (FBT)?
An employee may receive a payment in addition to their salary or wages. This often falls under the FBT:
In terms of car fringe benefits, an employee is defined as someone who:
- Is currently employed by the company
- Is a future or past employee
- The director of the company
- A beneficiary of a trust who works for the company
Examples of fringe benefits include:
- An employee using a work vehicle for their own private purposes
- Giving an employee a loan at a discounted fee
- Providing entertainment (such as free tickets to shows or concerts)
- Paying for an employee’s expenses (such as a gym membership or children’s school fees)
- Offering benefits using a salary sacrificing arrangement
When a fringe benefit is provided to an employee, the employer will incur fringe benefits tax, commonly known as FBT, which is a 47% tax on the taxable value of the fringe benefits provided.
This new FBT exemption on electric cars will enable employers to provide electric cars to employees without paying additional fringe benefits tax, provided the value of the electric vehicle is less than $84,916 for the 2022-23 financial year.
Is Salary Sacrificing in Exchange for Eligible Electric Cars the Answer?
Employers are likely to suggest salary sacrificing arrangements for electric cars to attract and retain employees that have enhanced remuneration packages.
Additionally, effective salary sacrificing involving fringe benefit tax-exempt electric cars may drive up the after-tax wages of staff.
It could also offer an “above the line” reduction for employers bearing the FBT liability, as well as help them reach their carbon reduction targets.
For example, if an employer provides an employee with an electric car to the value of $50,000, they could save up to $9,000 each year in fringe benefit tax, or $4,700 in the instance of salary sacrificing.
Unfortunately, FBT exemption is only an option for employees who have the option to salary sacrifice; it’s not a given for everyone.
Why the Luxury Car Tax Threshold is a Limitation
Exemption isn’t offered to luxury cars and only applies to those with a value of less than $84,916. This price includes all other related supplies that may incur luxury car tax for fuel efficient cars.
The difficulty is that there is only a limited range of electric cars below the luxury car tax threshold. To make matters worse, there are significant supply chain challenges to acquiring any electric car, so this exemption may not be useful in many cases.
Which Electric Vehicles Are Exempt From FBT?
The most affordable FBT exemption vehicles that offer fuel efficiency in Australia include:
- Chinese SUVs
- BYD (Atto 3)
- MG (ZS EV)
There are also options of FBT exempt electric cars from:
- Hyundai
- Lexus
- Kia
- Nissan
- Mazda
- Mini
- Polestar
- Volvo
However, the majority of buyers opt for more expensive brands. Tesla made up almost half the market’s sales last year, with the cheapest models starting from $65,500.
What About Import Tariffs?
The Labor Government has also announced changes to get rid of the 5% import tariff for eligible vehicles and develop the country’s first national Electric Vehicle Strategy. This will be in addition to the state/territory tax/duty concessions applicable to certain electric cars.
That means, although premium German and UK electric vehicles won’t be eligible for the benefit tax savings because they are too expensive, owners will no longer have to pay the additional 5% import tariff.
When is the Commencement Date For FBT Exemption Vehicles?
The FBT exemption will apply to any electric motor vehicle that is first held and used from 1 July 2022.
An explanatory memorandum was later added to the bill, stating that
- Second-hand electric cars only qualify for FBT if they were purchased new from 1 July 2022.
- Exemption may apply if the electric car was ordered and the employer had acquired legal title to it from 1 July 2022, but it wasn’t delivered by that date.
Which Zero and Low Emission Vehicles Qualify?
To qualify for the exemption, an electric vehicle must meet certain requirements. The car must be one of the following:
- Battery electric vehicle
- Plug-in hybrid electric
- Hydrogen fuel cell electric
Take note that there is a chance that self-charging hybrid electric vehicles aren’t eligible for FBT exemption at all.
Additionally, the exemption is not applicable to electric motorbikes. It must be a vehicle created to carry a load amounting to less than one tonne, and fewer than nine passengers.
Reporting for the Exempt Car Fringe Benefit
When calculating an employee’s reportable fringe benefit amount, exempt car benefits for electric cars will still be taken into account.
The benefits will therefore be considered when calculating employees’ Medicare levy surcharges, and when determining whether certain tax offsets or specific family assistance payments apply.
When modelling salary sacrifice arrangements using the new fringe benefits tax exemption, it’s important for employers to consider how it will affect an employee’s reportable FBBT amount.
Key Takeaways
Employers should think about implementing salary sacrifice policies to take advantage of this new FBT exemption. It can be used to increase employee attraction and retention as well as lower their carbon footprint.
However, remember that the exemption only applies to cars with a value of less than $84,916. Additionally, imported electric vehicles that are too expensive to receive FBT no longer require the additional 5% import tariffs.
Whether you’re a business owner or an employee interested in this topic, Box Advisory Services has tax agents and financial advisors on hand who can further explain the new rules and regulations surrounding this deduction. Furthermore, we can advise you on the best strategy for claiming it.
Get in touch with our team today and learn more about electric car FBT exemption.
