Electric Vehicle FBT exemption – double benefit for employers

The new FBT exemption on electric vehicles (EVs) allows  employers to benefit in tax  savings and recruitment and staff retention.

The exemption effective from 1 July, 2022 provides employers with a significant tax break and a valuable perk for retaining and recruiting staff.

Fringe benefits tax (FBT) is  levied to employers in connection with private-use, non-cash benefits provided to their employees. Commonly it has applied to motor vehicles.

The EV exemption excludes  the value of the EV benefit from the taxable fringe benefits provided to employees. Employers are not required to pay FBT on the value of that benefit, reducing the overall cost of providing EVs as a benefit for employees.

To qualify for the FBT exemption, the EV must meet certain criteria which include:

  • the car is a zero or low emissions vehicle
  • the first time the car is both held and used was on or after 1 July 2022
  • the car is used by a current employee or their associates (such as family members)
  • luxury car tax (LCT) has never been payable on the importation or sale of the car.

A vehicle is a zero or low emissions vehicle if;

  1. It’s a battery electric vehicle; hydrogen fuel cell electric vehicle or a plug-in hybrid electric vehicle, and
  2. It’s a car designed to carry a load of less than 1 tonne and fewer than 9 passengers, including the driver.

The EV is only eligible if the Luxury Car Tax (LCT) has never been payable on the importation or sale of the car, and the value of the electric car must also be below the LCT threshold for fuel efficient vehicles at the time it is first sold in a retail sale, and in any subsequent sale.

If you purchase an electric car second hand, you need to determine if it was subject to LCT at any time in the past. The LCT threshold for fuel efficient vehicles as at 1 July 2022 was $84,916.

The EV FBT exemption extends to include associated car expenses which include registration, insurance, repairs or maintenance, and fuel including electricity to charge and run electric cars.

Costs associated with a home charging station is not among the ATO’s allowable FBT exempt EV car expenses (such as depreciation and repairs in relation to the home charging station). As such, it will be necessary to consider how these arrangements will be managed.

Although the private use of an eligible EV is exempt from FBT, employers are still required to include the value of the benefit when working out whether an employee has a Reportable Fringe Benefits Amount (RFBA).

An employee has an RFBA if the total taxable value of certain fringe benefits provided to them (or their associate) is more than $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee’s payment summary.

Temporary Full Expensing rules may also apply for an immediate tax deduction for eligible EVs. However, the Temporary Full Expensing rules are end at 30 June 2023.

Contact our office with any questions.