2023 was a banner year for EVs in Australia, with more than 87,000 sold, representing around 7 per cent of all new vehicle sales. While EVs are gaining popularity in the general market, the Australian Government also introduced the Fringe Benefit Tax (FBT) Exemption for EVs, which became effective on July 1, 2022, to encourage EV uptake amongst businesses.
However, decoding the exemption and working out what qualifies and what doesn’t is a complex affair and something that is of particular concern to fleet managers wanting to stay on the right side of the law. Don’t worry, we’ve done a deep dive into the rules to explain just how the FBT EV Exemption works – and under what circumstances a vehicle or associated purchase may not be eligible.
FBT EV Exemption – a high level view
Essentially, the FBT EV exemption means employers are exempt from paying fringe benefit tax on eligible electric vehicles they provide for private use to employees. The exemption currently applies to battery electric, hydrogen fuel cell, and plug in hybrid cars.
The car must also have been first held and used on or after July 1, 2022, and the exemption also applies to associated car expenses including registration, insurance, and maintenance.
It’s important to note the car benefit is still reported on the employee’s income statement, something which may impact their Medicare Levy Surcharge Liability, along with their eligibility for certain government benefits. The exemption is also limited to the private use of the car by the employee and their associates.
Sound relatively straightforward? Let’s take a deeper dive to understand some of the nuances of the exemption.
A closer look at the exemption rules
All this is set to change next year when the legislation indicates plug-in hybrid vehicles will not be eligible for the exemption after 1 April 2025, unless the use of that car began before the April 2025 cut-off date. Plug-in hybrids will also continue to qualify for the exemption if the employer has a financially binding agreement to continue providing private use of the car on and after 1 April 2025.
EVs are often charged at home, and some workplaces are now offering take-home chargers to employees. However, employers should be aware that if they provide the employee with a home charger, it is regarded as a fringe benefit rather than an exempt associated benefit.
The ownership of the car – or, to use the technical term, how it’s held – is also an important consideration. Under the rules, an EV may be held by the employer, an associate of the employer or a third party. The employer can own the car outright or be leased and still be eligible for the exemption. However, vehicles directly owned by the employee aren’t considered as ‘held’ and, as a result, don’t qualify for the exemption.
The best way to work out who holds the vehicle is to examine the registration papers, insurance policies or leasing agreement.
There are also thresholds for qualifying regarding the overall cost of the car. In general terms, an EV that qualifies for the luxury car tax (LCT) is not exempt, although the floor of the LCT was raised by the government for fuel-efficient cars.
Generally, the LCT must be paid if the value of the car is above the LCT threshold for fuel-efficient vehicles and you’re either registered for GST and are an importer, retailer, wholesaler or manufacturer of luxury cars, or if you’re a private buyer who has imported a luxury car.
The upshot is that if the EV is second hand, you need to look at the sale price of the EV every time it has been sold to see if any LCT was payable.
Understanding car expense benefits
Expenses relating to the ownership and operation of an EV, and whether they are exempt from FBT, can be a tricky area. Generally speaking, car expense benefits, including registration, road user charges, insurance, repairs and maintenance and fuel – that is, the electricity used to charge the car – are exempt from FBT.
Items that aren’t valid expenses for the purposes of an FBT exemption include subscription services, such as GPS and map updates, along with car parking. If the employer provides their employee with a place to park, then normal FBT rules apply.
Finally, it’s important to understand the rules around reporting. Put, even if the private use of the EV is exempt from FBT, the taxable value of the car benefits must still be worked out and reported as if they were fringe benefits.
The FBT exemption for EVs is a positive policy designed to encourage the uptake of EVs, but understanding it is a complex task, and one that needs to be addressed by tax professionals to ensure your business stays on the right side of the law.
Remember, the advice given here is general in nature and it’s wise to consult a financial professional for specific guidance regarding your unique circumstances.
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