Electric cars may soon be FBT free

Electric cars may soon be made Fringe Benefit Tax (FBT) free as part of the Government’s plan to make zero and low emission vehicles the car of choice for Australians.

To make electric cars (EV) more accessible to Australians, the Government is focussing on the following:

• Cutting import tariffs
• Placing EV fast chargers once every 150 kilometres on the nation’s highways
• Creating a national Hydrogen Highways refuelling network, to deliver stations on Australia’s busiest freight routes
• Converting the Commonwealth fleet to 75% no-emissions vehicles.

The last point is the key driver in the FBT initiative.
The Government can control what it purchases and has committed to converting its fleet to no-emission vehicles, but for the private sector, there is a wide gap between the total cost of ownership of EVs and traditional combustion engine vehicles. It’s more expensive overall and the Government is looking to reduce that impediment through the FBT system.

How the EV FBT exemption will work
Generally, an employer who provides a car to their employee for private use must pay FBT, and this additional tax is usually passed on to the employee one way or another.

The proposed changes will introduce an FBT exemption for cars that are eligible zero or low emission vehicles. which meet the following requirements:

• The car must be first held and used on or after 1 July 2022
• The value of the car must be below the luxury car tax threshold for fuel efficient cars ($84,916 in 2022-23)
• The car is a low or zero emission car (e.g., battery electric, hydrogen fuel cell electric or certain plug-in hybrid electric vehicles)

Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year.

Can I salary sacrifice an electric car?
Assuming your employer agrees, and the car meets the criteria, salary packaging is an option.

While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available. In order for a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing.

Who cannot access the FBT exemption?
The FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.

The exemption is limited to cars. As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers.

What savings can I expect?
We anticipate that the concessions will be substantial enough to make EVs a more comparable choice with fossil fuel alternatives. This may make it easier and more accessible to choose the green alternative if you wish to!

Read more from the ATO.

Please feel free to contact us if you have any questions.