In December last year the Federal Government passed legislation that provided a Fringe Benefits Tax (FBT) exemption for employer provided electronic vehicles (EV).
When coupled with the ending of Temporary Full Expensing measures for eligible businesses, you can expect to see quite a bit of interest in the lead up to 30 June this year, so it seems timely to examine the new rules. Reports in the media also suggest that demand for EV’s may well exceed available supply in the near term.
We don’t profess to be EV experts, so we will set the technical & environmental issues to one side and focus on the tax issues.
Our usual caveat is firstly to avoid “letting the tax tail wag the dog”. If you don’t need a new car, it makes no sense to purchase one to “buy” a tax benefit. At best for every $1 you outlay; you will only get a 47 cent tax benefit (25 cents for most smaller corporate entities).
It also worth noting that currently EV’s are more expensive than conventional vehicles to buy. Other factors such as lower running costs, servicing costs and other State Government rebates and incentives need to be factored in.
That said, the new measures do provide a significant tax incentive when it comes to the new FBT exemption.
For eligible vehicles provided by an employer to a current employee, the EV will not be subject to FBT. Running costs such as registration, insurance, services, and electricity charges will also be FBT exempt.
What vehicles are eligible for the FBT exemption?
- The vehicle must be a “car” as defined to be a motor vehicle one designed to carry a load of less than 1 tonne and fewer than 9 passengers.
- The car must be a “zero or low emissions” vehicle which is defined as:
- – a battery electric vehicle
- – a hydrogen fuel cell electric vehicle; or
- – a plug-in hybrid electric vehicle
- The car price cannot exceed the Luxury Car Tax (LCT) threshold. For the 2023 year this is $84,916 (GST inclusive)
- Secondhand cars are eligible, but must not have ever been previously subject to LCT and the car was first purchased new on or after 1 July 2022
When do the measures apply from and when do they end?
- The measures commence with effect from 1 July 2022
- If you already bought one prior to 30 June 2022, there is no exemption (cars that were ordered prior to 1 July 2022 but delivered after 1 July 2022 will still be eligible)
- For plug-in EV’s the exemption will end on 1 April 2015, however, existing exempt plug-in cars will not lose their exemption provided there is a financially binding commitment to use the vehicle on and after July 2025
What about tax depreciation?
For eligible businesses, the temporary full expensing measures will still apply until 30 June 2023.
Note that there is a limit of $64,741 (for 2022-23) for cars. The cost of any new car above this amount will not be tax deductible.
Can the cars be salary sacrificed under novated leasing agreement?
Yes, they can.
Traps to watch out for
- Beware the sting in the tail if you are selling / trading in an existing car. Check to see if it has already been fully written off for tax purposes. This may be particularly relevant due to the instant asset write off or temporary full expensing measures. If your old car has been fully written off, the full amount received for the sale or trade may be subject to tax
- Charging stations are not cars, so they will not be part of the exemption. Providing one of these to an employee will be subject to FBT as a property benefit
- For business carried on by a trust, it needs to be clear that the benefit will be provided in respect of the employment of a current employee and not for example to the trustee or beneficiary of the trust
- The exemption does not apply to a sole trader or partner in a partnership, it must be to a current employee (meaning someone who receives or is entitled to receive a salary or wage).
- Elon Musk could be hiding under the bonnet!
Ready to start talking about the changes and how it effects your business? Talk to an expert today.