The ATO has now provided some further guidance on the Treasury Laws Amendment (Electric Car Discount) Bill 2022 which was enacted 12 December 2022 to provide an FBT exemption in respect of eligible zero or low emissions vehicles. 

As ever, the devil is in the detail and the exemption will only apply to a limited range of electric vehicles and is not quite as generous as the headlines indicate.

The Bill amends the Fringe Benefits Tax Assessment Act (FBTAA) 1986 to exempt from fringe benefits tax cars that are zero or low emissions vehicles held by the provider and used by or made available for private use of employees. The amendments will be reviewed in three years to determine their effectiveness in encouraging the uptake of cars that are zero or low emissions vehicles.

Treasury anticipates that the amendments will have the following cost impact on the Budget going forward:

The cost impact on the Federal Budget is not significant, so one might question the impact on encouraging the uptake of cars that are zero or low emissions vehicles given the minimal impact on FBT revenue.

This exemption will ONLY apply to electric cars that are first held and used on or after 1 July 2022. The purpose of the policy is to increase the take up of electric cars, and it will NOT apply to electric cars in use prior to 1 July 2022.

The FBT exemption relates to car fringe benefits and therefore will only apply to vehicles that are ‘cars’ for FBT purposes; other types of electric vehicles are excluded.

A car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).

This amendment will apply to cars that are:

•  battery electric vehicles;
• hydrogen fuel cell electric vehicles; and
• plug-in hybrid electric vehicles.

Critically from 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law. However, you can continue to apply the exemption if both the following requirements are met:

• Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
• You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

Additionally, to be eligible for the exemption the value of the car at the first retail sale must be below the luxury car tax threshold for fuel efficient cars – $84,916 for 2022/23. This will be an issue as there is a limited range of cars for sale below this price point.

This exemption will only apply to electric cars that are first held and used on or after 1 July 2022. The purpose of the policy is to increase the take up of electric cars, and electric cars in use prior to 1 July 2022 are therefore not eligible.

Example exemption does not apply – car first used before 1 July 2022

• If Zena acquires an electric car on 1 April 2022 and makes that car available for the private use of her employee Jack, to provide car fringe benefits from that date for 4 years, the benefits provided from 1 July 2022 will not be exempt.
• Additionally, if Zena were to instead sell the car to another employer after Jack had used it for only 2 years (i.e., on 1 April 2024) the benefit that that employer may provide to its employees for the use of the electric car will also not be exempt.

Example: exemption applies – car first used from 1 July 2022

• John ordered an electric car on 1 February 2022. The car was not subject to LCT. The car was delivered on 15 June 2022, at which time legal ownership passed to John.
• John first makes the car available for the private use of his employees on 5 July 2022.
• On 1 September 2023, John sells the electric car to XYZ Co. The new owner makes the car available for the private use of its employees from 1 September 2023.
• The electric car was:
  • first held on 15 June 2022 – when John started owning it
  • first used on 5 July 2022.
• The first time the electric car was both held and used was after 1 July 2022. Therefore, any car fringe benefits are exempt from FBT.

Have fun tracing the first held and used test when buying a second-hand electric car and determining whether it qualifies for the exemption!

Cars that do not satisfy the exemption criteria continue to be subject to FBT.

Car fringe benefits that are exempt from FBT will continue to be included in the employee’s individual fringe benefits amount for the purposes of determining the employee’s reportable fringe benefits amount for each FBT year in which the exempt benefit is provided.

Associated car expenses

The following car expenses are exempt from FBT if they are provided for an eligible electric car:

• registration
• insurance
• repairs or maintenance
• fuel (including electricity to charge and run electric cars).

Electric vehicle owners in some states and territories pay a road user charge, based on kilometres travelled. This charge is imposed as part of the car registration process. Therefore, road user charges are car expenses and will be FBT-exempt where the car satisfies the exemption criteria as outlined above.

However, a home charging station is not a car expense associated with providing a car fringe benefit for electric cars. It may be a property fringe benefit or an expense payment fringe benefit.

Additional issues may arise if the vehicle is recharged at home – dissecting the home electricity bill to determine the amount of electricity that can be claimed as fuel.

Other considerations

Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.

What should I do now?

You should speak to your accountant when considering purchasing zero or low-emission vehicles or entering into salary packaging arrangements in respect to zero or low-emission vehicles for employees.

Please contact your professional adviser or feel free to contact us if you’d like more information about contacting the ATO and discussing the potential impact of zero or low-emission vehicles.