As a measure to incentivise employers to provide their employees with electric cars (as opposed to their petrol or diesel counterparts), the Government has introduced the “Electric Car Bill”, which provides an FBT exemption for eligible electric cars that are provided by an employer to their employees (or their associates). This provides the opportunity for significant FBT savings for both employers and employees.
An electric vehicle is a ‘car’ for FBT purposes if it has a carrying capacity of less than 1 tonne and it is designed to carry fewer than 9 passengers. As such, prior to the introduction of the Electric Car Bill, the private use of an electric car that had been provided by an employer to their employees (or their associates) amounted to a car fringe benefit. This presented significant FBT consequences for an employer, particularly if they valued the car fringe benefit using the Statutory Formula Method (SFM). The SFM calculates the taxable value of the car fringe benefit with reference to the base value of the car, which can be considerably higher for electric vehicles.
A car benefit will be an exempt benefit in relation to a year of tax if all of the following requirements are satisfied:
- The car benefit is provided in the year of tax in respect of a current employee
- The exemption is available to current employees or their associates, but not future or former employees.
- The car benefit was provided on or after 1 July 2022.
- The car is a ‘zero or low emissions vehicle’ when the benefit was provided.
- A zero or low emissions vehicle is a car that is a battery electric vehicle, a hydrogen fuel cell electric vehicle or a plug-in hybrid electric vehicle.
It is important to note that plug-in hybrid electric vehicles cease to be a zero or low emissions vehicle from 1 April 2025, unless certain ‘transitional rules’ are met.
Essentially, where a car benefit relating to a plug-in hybrid car was provided and exempt under the electric cars FBT exemption prior to 1 April 2025, the transitional rules allow access to the electric cars FBT exemption beyond 1 April 2025 until there is a sufficient change to the pre-1 April 2025 arrangement.
Such changes to the pre-1 April 2025 arrangement include:
- Refinancing the car;
- Making alterations to an existing lease contract, including changing the duration of an existing lease contract;
- A change of employer, even within the same group of companies.
TIP: Caution should be exercised in relation to acquiring a plug-in hybrid car that is to be used as a ‘fleet car’ or similar until the ATO clarifies how it will administer the transitional rules in relation to ‘fleet cars’ not being available to one particular employee, as this may constitute a change in the pre-1 April 2025 arrangement.
A petrol-hybrid vehicle without an ability to plug-in, such as vehicles where the battery is recharged while you drive without being plugged in, are not eligible vehicles for the electric cars FBT exemption.
The first time when a person both held and used the car was on or after 1 July 2022.
TIP: The electric cars FBT exemption is not limited to new cars, but the relevant vehicle must not have been held or used by any person before 1 July 2022. Practically, this may present some challenges in determining when the car was first held and used, where the employer is not the first owner of the vehicle.
No amount of luxury car tax has become payable on a supply or importation of the car before the benefit is provided.
The luxury car tax for fuel efficient cars is $84,916 for the 2023 income tax year. Similar to point 4 above, it is necessary to determine whether luxury car tax was payable in relation to prior sales of the vehicle in order to access the electric cars FBT exemption.
In addition to the private use of the electric car being exempt from FBT, any associated running costs will also be FBT-exempt. This includes:
- Registration and insurance
- Repairs and maintenance
- Fuel (including the cost of electricity associated with charging the battery of an electric car)
TIP: It has previously been the case that FBT-exempt benefits are not included when calculating an employee’s reportable fringe benefits amount (RFBA). However, the Electric Car Bill provides that car benefits arising in respect of FBT-exempt electric cars are included when calculating an employee’s RFBA.