Electric vehicles to be exempt from FBT

The federal government has introduced a Bill into parliament to provide an exemption to car benefits fringe benefits tax (FBT) for electric vehicles. This bill has recently passed the House of Representatives.

This exemption will allow employees to salary package an electric vehicle from their employer to obtain a substantial tax benefit. The intention of this legislation is to improve the viability of purchasing 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 under s 136 of the Fringe Benefits Tax Assessment Act 1986 (and, ultimately, s 995-1 of the Income Tax Assessment Act 1997). 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.

However, an electric vehicle that was purchased before 1 July 2022 but delivered on or after 1 July 2022 may still be eligible for the exemption.

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.

Salary sacrifice

A car that is not an electric vehicle may cause an FBT liability for an employer if an employee enters into a novated lease. While there are some concessions available to employees who obtain a car fringe benefit, these are usually passed on and paid for with pre-tax dollars.

We have included a worked example that you may give to clients to show the difference an electric vehicle will have on salary sacrifice options. In this worked example, an individual earning $156,000 will obtain a tax benefit of $11,593 in the 2022–23 income year (assuming no further changes are made to the individual tax brackets).

Source: CCH iQ