Electric Cars Exemption
From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses.
Eligibility
You do not pay FBT if you provide private use of an electric car that meets all the following conditions:
- 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)
- luxury car tax (LCT) has never been payable on the importation or sale of the car.
Benefits provided under a salary packaging arrangement are included in the exemption.
The government will complete a review into this exemption by mid-2027 to consider electric car take-up. We will provide an update when this review begins.
Zero or low emissions vehicle
A vehicle is a zero or low emissions vehicle if it satisfies both of these conditions:
- It is a:
- battery electric vehicle
- hydrogen fuel cell electric vehicle, or
- 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, you can continue to apply the exemption if both the following requirements are met:
- Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
- You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any optional extension of the agreement is not considered binding.
Example: exemption applies to original agreement without extension
Simon enters into a novated lease with his employer and a finance company that entitles him to use a plug-in hybrid electric vehicle.
The lease begins on 1 April 2024 and is for 3 years, to 31 March 2027. There is an option to extend the lease for a further 2 years from 1 April 2027.
Simon’s private use of the vehicle is exempt from FBT up to 31 March 2027, because:
- He starts using the vehicle before 1 April 2025 and the requirements of the electric car exemption are met.
- There is a binding commitment to continue providing the vehicle until 31 March 2027.
However, the exemption will not apply after 31 March 2027, even if the option is taken to extend the lease for an additional 2 years. This is because, at the time the exemption for plug-in hybrid vehicles ends (just before 1 April 2025), the extension is conditional on it being exercised at a future time. Therefore the agreement at that time was not binding beyond 31 March 2027.End of example
‘Held and used’ the electric car
The practical effect of this requirement is that the electric car must be used for the first time on or after 1 July 2022 – even if it is held before this date.
An electric car is ‘held’ when it is:
- owned (includes cars acquired under hire-purchase arrangements)
- leased (or let on hire), or
- otherwise made available by another entity.
An electric car is considered ‘used’ when it is used or available for use by any entity or person.
Example: exemption does not apply – car first used before 1 July 2022
Shelly purchases an electric car on 1 April 2022. She makes it available for the private use of her employee, Jack, from that date until 30 July 2022.
On 1 August 2022, Shelly sells the electric car to ABC Co. ABC Co makes the car available for the private use of its employees from 1 August 2022.
The first time the electric car was both held and used is before 1 July 2022. Therefore, any car fringe benefits are not exempt from FBT.End of example
Example: exemption applies – car first used from 1 July 2022
John ordered an electric car on 1 February 2022. The car was not subject to LCT. The car was delivered on 15 June 2022, at which time legal ownership passed to John.
John first makes the car available for the private use of his employees on 5 July 2022.
On 1 September 2023, John sells the electric car to XYZ Co. The new owner makes the car available for the private use of its employees from 1 September 2023.
The electric car was:
- first held on 15 June 2022 – when John started owning it
- first used on 5 July 2022.
The first time the electric car was both held and used was after 1 July 2022. Therefore, any car fringe benefits are exempt from FBT.End of example
Determining if the car was subject to LCT
To be eligible for the exemption, the value of the electric car must be below the LCT threshold for fuel efficient vehicles at the time it is first sold in a retail sale, and in any subsequent sale.
If you purchase an electric car second hand, you need to determine if it was subject to LCT at any time in the past.
Example: exemption does not apply – car was subject to LCT
GHI Co purchases a new electric car on 1 July 2022 with a GST inclusive value of $85,000 from a car dealership in Australia.
The car does not meet the company’s needs, so they sell it for $83,000 on 31 July 2022 to Kerry.
Kerry reviews all available ownership and sales documentation, and checks the LCT threshold for fuel efficient vehicles on the ATO website.
She determines that LCT would have been payable by the dealership when GHI Co purchased the electric car, as the value of the car was above the fuel-efficient vehicle LCT threshold for 2022–23.
Any car fringe benefits arising from the private use of the car by Kerry’s employees will not be exempt from FBT, as the car was subject to LCT when first sold.End of example
Associated car expenses
The following car expenses are exempt from FBT if they are provided for an eligible electric car:
- registration
- insurance
- repairs or maintenance
- fuel (including electricity to charge and run electric cars).
You may be able to reduce the FBT on any items that aren’t exempt car expenses, if the expenditure would have been deductible to the employee had they incurred it themselves. This is called the otherwise deductible rule.
Home charging station
A home charging station is not a car expense associated with providing a car fringe benefit for electric cars.
However, it may be a property fringe benefit or an expense payment fringe benefit.
Reportable fringe benefits
Although the private use of an eligible electric car is exempt from FBT, you include the value of the benefit when working out whether an employee has a reportable fringe benefits amount (RFBA).
You will need to work out the notional taxable value of the benefits associated with the private use of the exempt electric car.
An employee has an RFBA if the total taxable value of certain fringe benefits provided to them (or their associate) is more than $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee’s payment summary.
The amount of RFBA reported for an employee is not added to an employee’s taxable income for determining income tax and Medicare Levy liabilities. However, it is added to an employee’s taxable income for calculating Medicare Levy Surcharge liability, and is included in income tests for family assistance, child support assessments and some other government benefits and obligations.
Source: ATO