Driving Green: FBT exemption, electric vehicles and tax.

 

In 2022, the Australian Government began incentivising electric vehicle (EV) purchases. They made qualifying EVs exempt from Fringe Benefits Tax (FBT) and offered some relief from the Luxury Car Tax.

Today, these incentives continue, allowing businesses to offer their employees EVs for personal use, without incurring FBT.

There are, however, some hoops to jump through and things to keep in mind. Only certain EVs qualify for this exemption. And, your records need to be in ship-shape.

Read on for more about what you need to know about FBT and electric vehicles.

 

Qualifying for FBT Exemption for Electric Vehicles

 

To qualify for FBT exemption, an electric vehicle must first satisfy a number of criteria.

Specifically, it must be:

1. A battery electric, hydrogen fuel cell electric, or plug-in hybrid electric car
2. A passenger vehicle designed to carry loads less than one tonne and fewer than 9 passengers, including the driver.
3. First purchased and used on or after July 1, 2022.
4. Used by a current employee or their associates (and yes, that includes personal/family use).
5. Valued below Luxury Car Tax (LCT) threshold when it was purchased ($89,332 for the current FY 2023/24)

 

What is the Luxury Car Tax (LCT)?

 

The Luxury Car Tax (LCT) is a tax on vehicles that have a GST-inclusive value above the LCT threshold set by the Australian Tax Office.

Introduced in 2000, the LCT was initially designed to bolster local manufacturing and discourage the import and sale of luxury vehicles in Australia.

In recent years, LCT thresholds and rates have been tweaked to incentivise the purchase of electric, hybrid and more fuel efficient vehicles.

 

What is the Luxury Car Tax (LCT) threshold, rate and value?

 

The current 2023-24 threshold is set at $89,332 for EVs and fuel efficient vehicles, and $76,950 for all other vehicles. 

Luxury Car Tax (LCT) thresholds

• FY 2023–24 $89,332 (EV/Fuel efficient) $76,950 (other)
• FY 2022–23 $84,916 (EV/Fuel efficient) $71,849 (other)
• FY 2021–22 $79,659 (EV/Fuel efficient) $69,152 (other)

 

Luxury Car Tax (LCT) value

Typically, the LCT value of a car includes the cost to purchase the vehicle, all customs/import duties, GST and the worth of any parts, accessories, or attachments provided or imported along with the vehicle.

 

Luxury Car Tax (LCT) rate

Vehicles with a LCT value above the LCT threshold pay the Luxury Car Tax at a rate of 33%, on the amount above the LCT threshold.

You can calculate your LCT owing on your vehicle as follows:

(LCT value − LCT threshold) × 10 ÷ 11 × 33%

 

Other Electric Vehicles and FBT Exemption

 

We hear you: a car is great, but do other electric vehicles qualify for FBT exemption? Great question.

Regrettably, other electric vehicles such as heavy vehicles, motorcycles, scooters, caravans, or e-bikes do not qualify for FBT exemption.

 

FBT Exemption on Electric Vehicle Associated Expenses

 

In addition to the purchase cost of an eligible EV itself, many associated running and maintenance expenses are also FBT exempt. 

Charging costs, registration, insurance, repairs and servicing (including parts and big ticket items like new tyres) are all FBT exempt on eligible electric vehicles.

Unfortunately, the installation of home charging stations is not considered an associated expense. However, the ATO advises it may be considered a property fringe benefit or an expense payment fringe benefit.

 

EV Home Charging Rate Guidance

 

The ATO has recently finalised guidance on the EV home charging rate. 

The guidance includes a shortcut method that allows you to account for the costs of charging an EV at home, at a flat rate of 4.20 cents per kilometre.

As an employer, you can use this rate from 1 April 2022 for FBT reporting purposes. 

Your employees can use this rate from 1 July 2022 for income tax purposes, when using the logbook method.

To rely on the shortcut method, your employees can’t include commercial charging station costs unless they can accurately proportion the vehicle’s total charge attributed to each charging location, whether at home or at a commercial station.

You can still choose to calculate the actual electricity cost incurred instead of relying on this shortcut method.

To work out the cost of the electricity used to charge an exempt plug-in hybrid electric vehicle (PHEV), you cannot use the shortcut method and will need to calculate the actual electricity expenses.

You can access the full Practical Compliance Guideline here.

If you’re in any doubt about which method is right for your business, or have questions about electric vehicles, FBT or Luxury Car Tax, speak to your advice team.

 

Record Keeping for Electric Vehicles and FBT

 

Whatever electric vehicle you buy, and whichever method you use to report your EV home charging rates, be sure your record keeping is in top form. 

Maintaining great working papers, being able to substantiate your claims and adhering to the provided methodology, are central to meeting your FBT obligations.

If you choose to use the shortcut method and the EV home charging rate of 4.20 cents per kilometre for FBT reporting, you’ll need to keep a valid logbook (including odometer records) for the vehicle, aligned to the applicable FBT year ending 31 March.

If your employees choose to apply the EV home charging rate Guideline for income tax purposes, they must maintain a valid logbook to calculate work-related car use and expenses. Additionally, they’ll need an electricity bill from their residential address for the applicable financial year to evidence electricity costs.

Owners of exempt plug-in hybrid electric vehicles (PHEVs) should take extra care and consult the Guidelines to ensure appropriate record-keeping and reporting.

 

Novated Leasing Options for Electric Vehicle Staff Benefits

 

Another way to make the uptake of EVs more accessible and attractive to your employees is through novated leasing.

Novated leases on eligible EVs are completely exempt from FBT. They allow your team to pay the lease, and any packaged running costs, from their pre-tax salary. 

This can make an EV not only possible but a truly competitive option compared to buying outright or leasing a traditional petrol-powered vehicle.

If you’re interested in novated leasing, get in touch with your advice team. Preferred rates are available for eligible employers through our novated leasing partner program.

 

Ready to Go Green with Your Team?

 

Whether you’re thinking of electrifying your fleet or offering EV benefits to your employees, there is a bit to consider as a business. But with government incentives like FBT exemptions and relief in the Luxury Car Tax, and the option of novated leasing, EVs have never been more in reach.

With a little planning and some good tax advice, you’ll be well on the way to driving green.