Fringe Benefit Tax and Electric Cars

January 26, 2023

With electric cars making up around 2% of Australia’s car market, it’s a small but rapidly growing sector. The obvious benefit of the push towards choosing electric is doing your bit to help the planet – a nice and perhaps unexpected perk is that the government has announced a soon-to-be-passed bill that electric car purchases are about to be exempt from fringe benefits tax. Here’s what you need to know.

What is FBT?

Fringe benefits tax is paid by employers for benefits other than salary given to employees. A perfect example of a fringe benefit is the personal use of a company car. Perhaps part of an employee's package might be that they’re given a car and petrol vouchers for the length of their contract.

Other examples of a fringe benefit include a gym membership or tickets to an event. FBT is calculated on the taxable value of the benefit (car, membership or ticket in this example).

FBT can add up quickly, particularly if you employ numerous people. Add in a car for everyone (or even a handful of your team) and suddenly that payable figure jumps significantly.  

Which electric vehicles are included in the FBT exemption?

The exemption will apply to vehicles that are low or zero emissions (so yes, hybrids are included). The exempt vehicles will include cars, 4WDs, utes, any vehicle that carries up to eight passengers or cargo of up to one tonne.

The main caveat is that to meet the criteria, the vehicle’s original purchase price must sit under the ‘luxury’ bracket of $84,916. This knocks out a lot of the EV options that are currently on the Australian market – but we’re confident that in coming years, we’ll see a lot more start to pop up (particularly if the government continues to incentivise purchasing).

To meet the FBT exemption criteria, the car must be first purchased or held after 1 July 2022. Second hand cars will also be included under the bill, as long as all of the above conditions are met. The second hand purchase price is irrelevant – as long as that original value was under the $84,916 amount, the vehicle remains eligible (even if you end up paying more for it second hand – which is entirely possible in the current market!).

How much money will the EV FBT exemption save you?

There are two methods that can be used to calculate the FBT payable on a vehicle.  However to put it simply, take a $50,000 car. On average, the exemption will save the employer $9,000 a year.

Something to consider is that EV’s come with extra costs. Charging the car means a charging port needs to be installed which can be a large upfront cost. Recharging means the electricity bill at work or at home can also skyrocket. Whether that cost will outweigh or equal petrol is something to think about.

Does the fringe benefit still have to be reported?

Short answer: yes. Does this matter? Potentially.

There are two types of FBT reporting:

1.  Business/Company level: the business does a FBT return to report any fringe benefits provided. EV cars are exempt from this reporting.

2. Individual employee level: The business has to report what fringe benefits have been provided to which employee. Although EVs are an exempt fringe benefit, they still must be reported in payroll as “Reportable Fringe Benefits Amount (RFBA)”. Rule of thumb is that 20% of the cost of the car is reported on the payment summary.

Whilst the EV fringe benefit is not part of an individual's assessable income, the amount of the benefit is included when determining certain things like super contributions, liability for the Medicare levy surcharge and HELP repayments.

Importantly, employees will be able to use salary sacrificing as a means of funding the EV if they wish to. It’s estimated that this will be the primary way the new bill will be uptaken.

For further information about fringe benefits tax and to discuss the potential financial benefits of using electric vehicles in your business, please don’t hesitate to get in touch with us.

Written by 
Manik Pujara
January 26, 2023

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