Advivo shared a quick update on the possible FBT exemption for Electric Vehicles.
Labour’s election campaign included bold statements relating to incentivising the uptake of Electric Vehicles (EVs) and plug-in hybrids. Their plan includes removing 5% customs duty and making eligible EVs and plug-in hybrid vehicles exempt from Fringe Benefits Tax (FBT), with the underlying principle being to reduce up-front and ownership costs associated with EVs as these are seen to be significant barriers to uptake.
The Electric Car Discount Bill 2022 has been drafted to enable the above and is currently before the senate after being introduced to Parliament on 27 July 2022. If passed, the Electric Car Discount is set to apply retroactively from 01 July 2022.
What does this mean for taxpayers?
If passed as drafted, the main scenarios where taxpayers can benefit are:
- Where an eligible EV is provided by an employer to an employee:
a. This means that an EV, regardless of whether considered a ‘car’ by the ATO or not, will be allowed the same FBT exemption as ‘commercial vehicles’.
b. The FBT exemption will still be subject to the same rules as commercial vehicles in that private use must be limited to:
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- travel between home and work
- travel that is incidental to travel in the course of employment duties; or
- non-work-related use that is minor, infrequent and irregular
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c. Treasury has estimated that an eligible EV valued at around $50,000 provided by an employer to an employee through this arrangement, could save the employer up to $9,000 a year.
- Where individuals use a salary sacrifice arrangement to pay for a qualifying EV.
d. Savings are estimated to be up to $4,700 per year for a model valued at around $50,000.
To qualify for the FBT exemption, qualifying EVs need to be first sold at a retail price below the luxury car tax threshold for fuel-efficient cars, which is $84,916 for the year ending 30 June 2023.
Be warned:
- The legislation is yet to be passed, so regardless of it being intended to be retroactive, it is still subject to change, and any savings will still be subject to the legislation ultimately receiving royal assent.
- The estimated savings from Treasury appear to be based on similar usages of vehicles classed as ‘cars’ by the ATO. This means that if you’re already benefiting from an FBT exemption, the estimated savings will be considerably lower.
- The EV FBT exemption, in its current form, is set to be reviewed after three years to ensure it remains effective. So any benefit may end up being short-lived.
Closing thoughts:
At Advivo, we’ve always said, “don’t buy a car to save on tax” and if passed, this legislation won’t change that advice. Situations, where these types of arrangements can be beneficial, are those where you’re looking to buy a car regardless, and if it’s appropriate for it to be worked into one of the above scenarios, then it may be worthwhile investigating these further. If you’re considering adding an (or multiple) electric vehicle(s) to your fleet, or providing one to an employee, feel free to contact us for an update on the status of this bill, and for further information on what the savings could mean specific to your circumstances.
