Electric vehicles to be exempt from FBT

Legislation has been introduced which provides an exemption to car benefits fringe benefits tax (FBT) for electric vehicles.

This exemption will allow employees to salary package an electric vehicle from their employer to obtain a substantial tax benefit using pre-tax dollars to fund car benefits. The intention of this legislation is to improve the viability to purchase a new electric vehicle.

Summary of the new law

Electric vehicles that are first held and used on or after 1 July 2022 will be considered an exempt car benefit. To be eligible:

§   the car must be a zero or low emissions vehicle, and

§   the value of the car at the first retail sale must be below the luxury car tax threshold for fuel efficient vehicles.

For the 2022–23 income year, the luxury car tax threshold for fuel efficient vehicles is $84,916.

Zero or low emissions vehicle

There are 2 major tests for a vehicle to come within the meaning of zero or low emissions exemption:

§  The car must satisfy the requirements generally covered by the car fringe benefits rules. Generally, this is a motor vehicle designed to carry a load of less than one tonne and fewer than 9 passengers.

§  An electric car must:

§  Use one or more electric motors for propulsion, and

§  Be fuelled by either an off-vehicle electrical power source, a battery, an electric generator, a hydrogen fuel cell, or a combination of these.

To avoid doubt, the definition of a zero or low emissions vehicle includes:

§  battery electric vehicles

§  hydrogen fuel cell electric vehicles, and

§  plug-in hybrid electric vehicles

First held and used on or after 1 July 2022

The electric vehicle must be first held and used on or after 1 July 2022 to be eligible for the exemption. Therefore, a second-hand electric vehicle that was used before 1 July 2022 will not be eligible.

No limits

Unlike other FBT exemptions, there are no limits surrounding the exemption for electric vehicles. There is no need for a declaration from the employee (or their associate) stating that the vehicle is mainly used for business purposes.

Car Fringe Benefits

Car fringe benefits include the cost of the electric car, registration, insurance, repairs and maintenance and any other operating costs.

If you have any questions about the FBT exemption and how it may benefit you please contact us.