The Treasury Laws Amendment (Electric Car Discount) Bill 2022 received Royal Assent on 12 December 2022. This legislation provides for an exemption from Fringe Benefits Tax (FBT) for benefits pertaining to electric cars. Limited guidance has been provided by the ATO to date however it has been indicated that further guidance will be released once the Bill has been enacted.
What vehicles qualify?
In order to benefit from this exemption, the car must be a zero or low emissions vehicle i.e. a battery electric vehicle, a hydrogen fuel cell vehicle or a plug-in hybrid electric vehicle.
The car must also be held and used for the first time on or after 1 July 2022. It can be second-hand car however the first retail price, regardless of what was paid for it second-hand, must be below the luxury car threshold (2022/23 $84,916).
To clarify, “held and used” means the car can be held prior to 1 July 2022 however it must be used for the first time on or after that date.
It should be noted, plug-in hybrid electric vehicles will not be considered low emissions vehicles after 1 April 2025 and will only continue to qualify for the exemption if the vehicle was exempt before that date. Electric motorcycles and scooters do not qualify for this exemption.
What expenses are exempt from FBT?
For cars that qualify under the above criteria the following expenses are exempt from FBT:
- Registration
- Insurance
- Repairs and maintenance
- Fuel (including electricity used for charging)
For any items not listed above and which would have been deductible for an employee had they incurred it themself, the FBT may be reduced under the “otherwise deductible rule”.
Guidance from the ATO advises the purchase of a home charging station is not a car fringe benefit expense however it may qualify as a property fringe benefit or as an expense payment fringe benefit.
Reportable fringe benefits
It is important to note that as an employee’s reportable fringe benefits amount (RFBA) is used in the calculation of various entitlements and liabilities, the Act still requires employers to calculate the RFBA for relevant employees on qualifying cars and expenses, despite them being exempt from FBT.
The following examples show the possible savings to employers and employees under this legislation:
Savings to employers:
Employers can reduce their FBT liability by providing their employees with a car which qualifies under the above criteria as opposed to a standard car.
For a vehicle costing $50,000, the average saving will be $9,777, calculated as follows:
Cost of Vehicle | $50,000 |
Taxable value | $10,000 ($50,000 @ 20%) |
FBT Liability prior to introduction of exemption | $9,777 ($10,000 x 2.0802 @ 47%) |
FBT Liability post introduction of exemption | Nil |
Savings | $9,777 |
Savings to employees – salary sacrifice arrangement
Typically, when an employee financially contributes to the provision of a car fringe benefit, their contribution will be made from after-tax salary. However, for electric cars that qualify as above, the financial contribution made by the employee may now be made via salary sacrifice from pre-tax amounts resulting in significant savings.
With no salary sacrifice | |
Annual salary | $130,000 |
Less: PAYG Witholding | $ 35,828 |
Net pay, pre car-expenses | $ 94,172 |
Less: Car expenses (after tax) | $ 20,000 |
Net pay | $ 74,172 |
With salary sacrifice | |
Annual salary | $130,000 |
Less: Salary sacrificed for car expenses | $ 20,000 |
Taxable salary | $110,000 |
Less: PAYG Witholding | $ 28,444 |
Net Pay | $ 81,556 |
Overall saving to employee | $7,384 |
If you would like more information on this issue or if would like to discuss how this FBT incentive impacts you and your business, please do not hesitate to contact your Hall Chadwick QLD advisor.
