Business triple treat – Electric vehicle FBT exemption

The Government’s Fringe Benefits Tax (FBT) exemption for electric vehicles has provided a rare triple treat for business.

While at the heart of it, the exemption introduced on 1 July, 2022 aims to reduce Australia’s carbon footprint, it also provides employers with a significant tax break, a valuable perk for retaining and recruiting staff, and positive PR that will likely strike a chord with an increasingly climate-aware public.

Fringe benefits tax (FBT) is a tax levied to employers in connection with private-use, non-cash benefits provided to their employees. Commonly it has applied to motor vehicles. In recent years, we have found that due to this additional tax cost (not to mention other costs, such as tax compliance and financing), employers have been less inclined to offer company owned vehicles to staff.

However, with the introduction of the FBT exemption on electric vehicles (EVs), many employers are finding they have a new ace up their sleeve in terms of recruitment and staff retention benefits.

The exemption works by excluding the value of the EV benefit from the taxable fringe benefits provided to employees. This means that employers are not required to pay FBT on the value of that benefit, reducing the overall cost of providing EVs as a benefit for employees.

It may mean employees are more efficiently able to obtain greater after-tax earnings from their salary package and employment arrangements.

But there are conditions – of course!

To qualify for the FBT exemption, the EV must meet certain criteria which include:

the car is a zero or low emissions vehicle
the first time the car is both held and used was on or after 1 July 2022
the car is used by a current employee or their associates (such as family members)
luxury car tax (LCT) has never been payable on the importation or sale of the car.

So, what’s the definition of a zero or low emissions vehicle?

A vehicle is a zero or low emissions vehicle if it satisfies both of the following conditions:

It’s a battery electric vehicle; hydrogen fuel cell electric vehicle or a plug-in hybrid electric vehicle, and
It’s a car designed to carry a load of less than 1 tonne and fewer than 9 passengers, including the driver.

It’s also worth noting, from 1 April 2025 plug-in hybrid electric vehicles will broadly cease being eligible for the FBT exemption.

Motorcycles and scooters (even if they are electric) are not considered to be cars, so for FBT purposes they do not qualify for the exemption.

Further, the EV is only eligible if the Luxury Car Tax (LCT) has never been payable on the importation or sale of the car, and the value of the electric car must also be below the LCT threshold for fuel efficient vehicles at the time it is first sold in a retail sale, and in any subsequent sale.

If you purchase an electric car second hand, you need to determine if it was subject to LCT at any time in the past. The LCT threshold for fuel efficient vehicles as at 1 July 2022 was $84,916.

The EV FBT exemption extends to include associated car expenses which include registration, insurance, repairs or maintenance, and fuel including electricity to charge and run electric cars.

Costs associated with a home charging station is not among the ATO’s allowable FBT exempt EV car expenses (such as depreciation and repairs in relation to the home charging station). As such, it will be necessary to consider how these arrangements will be managed.

Although the private use of an eligible EV is exempt from FBT, employers are still required to include the value of the benefit when working out whether an employee has a Reportable Fringe Benefits Amount (RFBA).

An employee has an RFBA if the total taxable value of certain fringe benefits provided to them (or their associate) is more than $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee’s payment summary.

On the face of it, the EV FBT exemption has a direct benefit to employees as they are able to salary package eligible EVs in a tax effective way. In addition, we have identified that there are at least three key benefits for employers as well.

#1: Staff recruitment and retention strategy:
EVs appeal to staff on many levels. For some, EV satisfy their environmental conscience, while others enjoy being among the early adopters of new and emerging technologies. Either way, EVs offer an attractive benefit when recruiting and retaining staff.

#2: Positive PR:
There’s also positive PR to be enjoyed, as EVs reflect an environmental awareness that is generally appreciated by staff, peers and the public at large.

#3: Temporary Full Expensing:
And finally, Temporary Full Expensing rules may apply for an immediate tax deduction for eligible EVs. However, there is also a twist in the tale, as the depreciation cap for income tax purposes is around $25,000 less than the maximum EV FBT exemption cap, not to mention that the Temporary Full Expensing rules are scheduled to end as at 30 June 2023.

Next steps
The FBT exemption for EVs in Australia is an important step towards a cleaner, greener future for the country, but as you’ve read here it also provide other opportunities for employers and their staff.

The exemption arguably makes EVs more affordable and accessible while providing a financial incentive for businesses to adopt more environmentally friendly practices.

However, the tax rules are not straightforward and as such, I would recommend speaking to an experienced FBT advisor, or giving me a call, before implementing a strategy of providing EVs to staff.

To find out more about FBT exemption eligibility, FBT reporting periods (1 April to 31 March) through STP2 and salary packaging for staff recruitment and retention please contact Craig Barry, Resources Unearthed on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au.