From 1 July 2022 employers no longer need to pay fringe benefits tax (FBT) on benefits provided for eligible electric cars and associated expenses. The objective of the exemption is to encourage a greater take up of electric cars by making them more affordable and to reduce Australia’s carbon emissions from the transport sector. After three years the exemption will be reviewed to consider the electric car take-up.
When does the FBT exemption apply?
A car benefit will be an exempt benefit for FBT purposes if all of the following conditions apply:
- the car is a zero or low emissions vehicle
- the first time the car is both held and used is on or after 1 July 2022
- the car is used by a current employee or their associates (such as family members)
- the car was purchased for an amount below the luxury car tax threshold for fuel efficient cars which is $84,916 for the 2022-23 financial year.
Registration, insurance, repairs, maintenance and fuel expenses for eligible electric cars are also exempt from FBT. However home charging stations are not exempt.
What is a zero or low emissions vehicle?
A vehicle is a zero or low emissions vehicle if it satisfies both of these conditions:
- It is either a battery electric vehicle, hydrogen fuel cell electric vehicle, or a plug-in hybrid electric vehicle.
- It is a car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).
Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.
Plug-in hybrid electric vehicles – 1 April 2025 onwards
From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law. However, the exemption will continue to apply if the use of the vehicle was exempt before that date, and there is a financially binding commitment to continue providing private use of the vehicle from that date.
Reportable fringe benefits still apply
Although the private use of an eligible electric car is exempt from FBT, you still need to determine the taxable value of the benefit when working out whether an employee has a reportable fringe benefits amount (RFBA).
If the total taxable value of reportable fringe benefits provided to an employee during the FBT year is more than $2,000, you must report the RFBA through Single Touch Payroll or on the employee’s payment summary.
While the employee is not directly taxed on the RFBA, it is taken into account when calculating Medicare Levy Surcharge liability, and is included in income tests for family assistance, child support assessments and some other government benefits and obligations. Therefore the employee should be aware of this so there are no unintended consequences.
FBT can be a tricky area of tax and the record keeping requirements can trip up unsuspecting employers. Therefore contact us to set up an appointment if you want advice on your specific situation and how the FBT exemption for electric vehicles can apply to your business.