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In one of it's goals to make Electric Vehicles more affordable, encourage uptake and reduce Australia's transport emissions, the Federal Government put forward a Treasury Laws Amendment (Electric Car Discount) Bill 2022 that recently passed royal assent. This means that new electric cars are now exempt from Fringe Benefits Tax. But what does this actually mean and how does it affect you?
The new law will apply to cars, vans, 4WDs, utes, and any goods-carrying vehicle that has a cargo capacity of less than one tonne, or a passenger vehicle that can carry up to eight people. But there's a catch - it only applies to vehicles that are zero or low emission. This means battery electric vehicles (BEVs), hydrogen fuel cell electric vehicles (FCEVs) and plug-in hybrid electric vehicles (PHEVs).
To be eligible, the car must have a battery that can be recharged by an external power source. This means it won't apply to hybrid electric vehicles (HEVs) that run mainly on liquid fuels. Also, the car's first retail price must be below the luxury car tax threshold of $84,916 (for 2022-23), which unfortunately rules out a lot of EVs currently on the market. But there's still hope, as prices are expected to come down as more people start buying EVs.
One last thing, the car must have been first held and used on or after 1 July 2022. This means that even if you ordered an electric car before that date, as long as it wasn't delivered until after, you can still qualify for the exemption
Eventually second-hand electric vehicles will be eligible for the FBT exemption, but there are some conditions. To qualify, the car needs to have been first purchased as new on or after 1 July 2022 for less than $84,916 (or whatever the luxury tax threshold is in future financial years).
For instance, let's say you purchase a Tesla Model 3 for $65,000 today and later decide to sell it to someone else who makes it available to their employee as a fringe benefit. In that case, the car would be eligible for the exemption because its first retail price was under the luxury tax threshold. But if you purchase a Tesla Model 3 Performance for $93,000 today and then sell it for $50,000 the next day, it still won't be eligible for the exemption because its first retail price was over the luxury tax threshold.
Selling company cars second-hand is actually a great way to make EVs more affordable for the general public. In Europe, many new EV sales come from heavily subsidized company cars. And when these cars become available in the second-hand market after a few years, they become a more affordable option for everyday consumers.
Usually, if an employer offers a company car to their employee for private use, the employer would have to pay a tax called Fringe Benefits Tax (FBT). This tax is usually 47% of the value of the benefit provided. But with the new amendment, businesses can now provide electric cars as a fringe benefit without having to pay these taxes or asking the employee to make a contribution.
To put it into perspective, if an employer offers an electric car worth $50,000 to their employee, they could save up to almost $10,000 a year in taxes. If the same car is offered to the employee through a salary sacrifice arrangement like a novated lease, the employee could save up to $4,700 a year depending on their tax rate.
An example of the potential tax savings for a businesses providing an electric vehicle to an employee using the statutory method:
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