The Federal Government introduced legislation providing an FBT (fringe benefits tax) exemption for electric cars, applicable to financial years ending on or after June 30, 2023. These FBT exemptions can be extremely valuable for both employers and employees. 

Background

The recently introduced FBT exemption allows employers to provide eligible electric cars to current employees (or their associates, including spouses) without incurring any FBT liability. Eligible cars encompass fully electric vehicles and plug-in hybrid models.

In addition, this exemption extends to electric cars provided under salary packaging arrangements. Employees can now opt to package lease payments, registration, and other car expenses from their pre-tax salary, without triggering FBT.

The exemption covers various costs associated with the electric car, including electricity, registration, insurance, repairs, and maintenance. Lease payments by employers are also eligible for the FBT exemption.

Beyond FBT savings, employers can also benefit from reduced employment on-costs. This includes potential savings on payroll tax, Workcover (based on the employer’s state or territory location), and superannuation guarantee contributions.

Things to consider

The FBT exemption only applies if all of the following conditions are satisfied;

1. The car is a ‘zero or low emissions vehicle’
2. The first time when a person both held and used the car was on or after 1 July 2022.
3. The car benefit was provided on or after 1 July 2022.
4. The car is provided in respect of the employment of a current employee, including an employee or their associate (e.g., spouse) (the exemption does not apply to a future or former employee).
5. No amount of luxury car tax (LCT) has become payable on a supply or importation of the car before the benefit is provided. (for the financial year 2024, the LCT is $89,332)

What about second hand cars?

To qualify for the FBT exemption on eligible electric cars, they must be first ‘held’ and ‘used’ by a person on or after July 1, 2022. Determining this for second-hand cars can be challenging. Employers acquiring such cars must trace back to the initial retail sale to confirm eligibility.

Plug-in Hybrids – a special case

Plug-in hybrid cars, face a sunset clause, typically losing eligibility for the FBT exemption after April 1, 2025. To qualify beyond this date, specific transitional rule requirements must be met:

• before 1 April 2025, a car benefit relating to the plug-in hybrid car was provided and was exempt under the FBT exemption for electric cars.
• before 1 April 2025, the employer, the employee (or an associate of either), committed to the application or availability of the car, in respect of the employment of the employee by the employer, for a period that began before 1 April 2025; and
• at no time on or after 1 April 2025, there should be no new commitment to the car’s application or availability for employment.

In simple terms, the transitional rule extends the FBT exemption for plug-in hybrid vehicles beyond March 31, 2025, if provided under a commitment made before April 1, 2025. However, concerns arise regarding continuing exemptions in scenarios like refinanced novated lease agreements, lease term extensions, or provision by a new employer after April 1, 2025.

Other issues

In light of the above, it’s clear that a new (or second hand) electric car acquired in the 2024 income year costing less than $89,332 would qualify for this exemption. However, care should be taken in the circumstances where the car costs more than the so-called depreciation cost limit.  The Income Tax Assessment Act 1997 (the tax act) restricts certain deductions that can be claimed in relation to such a car.  Given this complication, it may be prudent to ensure that, the electric car also costs less than car limit of the depreciation cost ($68,108 for the 2024 income year).

Further questions

Please find the details from ATO website here and contact us if you have any questions or require assistance.