FBT & Electric Car Exemption
You may have heard about the new FBT (Fringe Benefits Tax) exemption for electric cars that was announced last year and recently made law. From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses.
Here is a summary of the key requirements:
1. The car benefit was provided on or after 1 July 2022.
2. The car is a ‘zero or low emissions vehicle’ (outlined below) when the benefit is provided (more info below)
3. The first time when a person both held and used the car was on or after 1 July 2022 (can be a second hand car but you must have purchased it after this date and not before)
4. No amount of luxury car tax has become payable on a supply or importation of the car before the benefit is provided. Cost must be under the threshold listed here (currently $89,332 for 2024 financial year)
** The FBT exemption only applies where an employer provides a car to an employee. If you're a sole trader or a partner in a partnership, you are not an employee. Benefits you provide to yourself are not subject to FBT. Your clients are not employees. Benefits you provide to clients, such as entertainment, are not subject to FBT. If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity).
What is a ‘zero or low emissions vehicle’?
Not all electric cars qualify for the FBT exemption for electric cars. It is only those cars that fall
within the definition of ‘zero or low emissions vehicles’ that will qualify. Under S.8A(2) to (5), a
zero or low emissions vehicle is a car that is:
1. A battery electric vehicle – this is a motor vehicle that:
• uses only an electric motor for propulsion; and
• is fitted with neither a fuel cell nor an internal combustion engine.
2. A hydrogen fuel cell electric vehicle – this is a motor vehicle that:
• uses an electric motor for propulsion; and
• is equipped with a fuel cell for converting hydrogen to electricity; and
• is not fitted with an internal combustion engine.
3. A plug-in hybrid electric vehicle where the car benefit in question is provided prior to 1 April
2025 or is covered under the transitional rule set out below.
Note that a plug-in hybrid electric vehicle is a vehicle that:
• takes and stores energy from an external source of electricity; and
• is fitted with an internal combustion engine for the generation of electrical energy and/or the
propulsion of the vehicle.
So what is the catch?
While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments - more info here.
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