Electric Vehicle FBT Exemption
In the news, electric cars have been getting a lot of attention. A car that was once the preserve of the elite is now more common on the streets. One-third of all electric vehicle sales in Australia occur in New South Wales alone.
Since the government's election in May, there have been numerous tax questions regarding the purchase of electric vehicles.
Last month, the Federal Government released draft legislation (Treasury Laws Amendment (Electric Car Discount) Bill 2022) to fulfill their election promise to exempt certain electric cars from Fringe Benefits Tax (FBT).
FBT applies to businesses that acquire electric cars (that are used for private purposes or parked at private residences). An additional tax cost on top of already high expenditures can be significant.
The cost of electric vehicles may have put you off considering them for your company's new car. But, an electric car is an attractive perk to offer employees as a fringe benefit.
For employers (and employees), the draft release provides a new tax planning consideration.
For eligible electric cars with a retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 for 2022 23), the exemption will be available beginning on or after 1 July 2022. It is highly unlikely that you would be worse off (even if you bought a car last year) if you bought a new car to take advantage of the proposed FBT exemption if you provide a car to your employees.
It also states that:
- If an employer provides a model valued at about $50,000 through this arrangement, the estimated FBT exemption should save the employer up to $9,000 a year per car.
- Individuals/employees using a salary sacrifice arrangement to pay for the same model would save up to $4,700 a year. A salary sacrifice arrangement involves the individual employee reducing their gross income to pay for the car, which effectively can reduce their personal tax bill.
- If eligible, businesses may claim a full tax deduction for the electric cars up to $64,741 for the 2022-23 year under the "temporary full expensing provisions." At this stage, the temporary full-expensing provisions end on 30 June 2023.
While the legislation has not yet been passed as law, employers should consider updating their internal policies and processes to allow salary sacrificing for electric cars to be a more attractive employer and/or to change the priority of obtaining electric cars for their businesses to save on FBT.
For advice on how to minimize your business's FBT liability or how an electric vehicle could benefit your business (and maximise its tax effectiveness), you should consult a professional tax adviser (such as us).
Thank you for reading!
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The TAS Team
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