Fringe Benefit Tax (FBT) on Zero or Low Emissions Cars

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Good news! From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses. Benefits provided under a salary packaging arrangement are included in the exemption.

For vehicle eligibility

  • The car must be a zero or low emissions vehicle
  • The first time the car is both owned (or leased) and used must be on or after 1/7/22
  • The car must be used by a current employee or their associates
  • Luxury car tax (LCT) must not have ever been payable on the importation or the sale of the car.

Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.

To satisfy as a Zero or low emissions vehicle

  • The vehicle must be a:
    • battery electric vehicle
    • hydrogen fuel cell electric vehicle, or
    • plug-in hybrid electric vehicle.
  • It must be a vehicle designed to carry fewer than 9 passengers (including the driver), and a load of less than 1 tonne.

The catch for plug-in Hybrid vehicles and this exemption

From 1 April 2025, FBT law will no longer consider a plug-in hybrid electric vehicle to be a zero or low emissions vehicle.

However, you can continue to apply the exemption if: 

  1. Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025, AND
  2. 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.

Associated car expenses

The following car expenses are exempt from FBT if they are supplied for an eligible electric car:

  • fuel (including electricity to charge and run electric cars)
  • insurance
  • registration
  • repairs or maintenance

You may be able to reduce the FBT on any items that are not exempt car expenses, if the expenditure would have been deductible to the employee had they incurred it themselves.
Recognising in-home charging stations are not an inconsequential cost; the home charging station consequence cannot be ignored. Currently, the expense is not associated with supplying a car fringe benefit for electric cars. However, it may be considered a property fringe benefit or an expense payment fringe benefit.

Another identifiable dilemma is trying to break down fuel (electricity) consumption costs from a lump sum household bill, or the electricity consumed if recharging from a work or public charging station.

Reportable fringe benefits

Although the private use of an eligible electric car is exempt from FBT, the value of the benefit will be needed 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 figuring out 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. Hence, a potential for significant impact for employees subjected to means-tested government entitlements or liabilities, with possible unexpected lump sum payments required.

The Takeaway

It is important that both the Employer and Employee are aware of the potential implications of buying or leasing a zero or low emissions vehicle and that, for employers in particular, relevant governance measures are implemented.

For employers, the transition to, or accommodation for zero or low emissions vehicles as part of employee novated lease programs, induces an investment in updating policies, systems, record keeping requirements and employee communication.

For employees, in a packaging perspective, understanding what zero or low emissions vehicles are eligible for the FBT exemption is important, as is the FBT exemption relevance to associated costs, particularly common cost outlays for home charging, charging infrastructure, road user charge costs, etc. It is also key for employees to understand the potential (and likely significant) impacts from the RFBA increase, which could impact government programs such as study and training loan repayments, childcare rebates, etc.

 

Author

Naomi Aspromourgos