Electric vehicles now exempt from FBT

Electric vehicles now exempt from FBT

Legislation for the long awaited FBT exemption for electric vehicles has finally passed through both Houses of Parliament.

This exemption will benefit both the employee and the employer by allowing the employee to salary package an electric vehicle. In instances where the employee salary sacrifices the entire monthly repayment and running costs of the vehicle, the employee will be able to pay for the car using their before tax salary.

Previous Law

Under the previous law, an employer providing an electric vehicle to their employee were subject to FBT at the flat rate of 47% on the taxable value of the benefit.

Summary of the New law

The new law will retrospectively apply to vehicles held for use on or after 1 July 2022.

To be eligible the electric vehicle must be:

1. a zero or low emissions vehicle. This includes

  • battery electric vehicles
  • hydrogen fuel cell electric vehicles, and
  • plug-in hybrid electric vehicles – of the car has an internal combustion engine, it will only qualify if it can be recharged by an off-vehicle power source; and

2. below the fuel efficient luxury car tax threshold at first sale. For the 2022-2023 income year, the threshold is $84,916.

A car must fulfill the requirements generally covered by the car fringe benefits rules under s 136 of the Fringe Benefits Tax Assessment Act 1986 and, s 995-1 of the Income Tax Assessment Act 1997). Generally, this is a motor vehicle designed to carry a load of less than one tonne and fewer than 9 passengers, which means it will likely exclude vehicles such as the Tesla Cybertruck.

First held and used on or after 1 July 2022

The electric vehicle must be first held and used on or after 1 July 2022 to be eligible for the exemption. Second-hand cars can qualify, but only if their first retail sale was on 1 July 2022 or later.

Cars ordered prior to 1 July 2022 will qualify if they were not delivered until 1 July 2022 or later.

Other Matters

Private use of these cars will still result in reportable fringe benefits for employees, including for employees of not-for-profit employers. So employers will still need to perform FBT related calculations for these vehicles.

Electric car fringe benefits that are exempt from FBT will still be counted towards a current employee’s reportable fringe benefits amount (RFBA). This will apply for each FBT year in which the exempt benefit is provided, as RFBAs are used to determine various liabilities and entitlements. However, the employer is not required to report eligible electric car benefits provided to employees in their Fringe Benefits Tax returns.

Please contact our office if you would like to know more about the exemption.