Treasury Laws Amendment (Electric Car Discount) Bill 2022 was introduced which proposes to make the provision of zero or low emissions vehicles exempt from fringe benefits tax (FBT).
The FBT exemption will apply to cars below the luxury car tax threshold for fuel efficient vehicles (currently set at $84,916 for the 2022-23 income year) which are:
- battery electric vehicles;
- hydrogen fuel cell electric vehicles; and
- plug-in hybrid electric vehicles.
A car that has an internal combustion engine will not be within the scope unless it is able to be fuelled by a battery that can be recharged by an off-vehicle power source (i.e. plug-in hybrid car). The benefit exempted from FBT for eligible electric cars will include any associated running costs.
The exemption is restricted to cars designed to carry a load of less than one tonne and fewer than nine passengers. This Bill does not change the treatment of fringe benefits involving the use of other electric vehicles which are not cars, such as motorbikes.
Application to salary sacrifice arrangements
Provided the conditions for the exemption are satisfied, the exemption is available if the benefit is provided under a salary packaging arrangement. Salary sacrificing involves an employee sacrificing part of their “gross” salary towards the cost of a fringe (i.e. non-cash) benefit. Salary sacrifice arrangements work in such a manner where the individual claims a tax deduction for the amount sacrificed and the employer may then have an additional FBT liability in relation to the benefit provided. However, no further FBT is payable by the employer if the benefit provided is an exempt fringe benefit.
Effectively, the employee gets a tax deduction for the costs associated with the vehicle and the employer does not have to pay any additional FBT. Novated lease arrangements are extremely popular in relation to motor vehicles, and we expect this exemption to make them even more popular over the coming years.
Date of effect
Once legislated, the exemption will apply to zero or low emissions vehicles which are first held and used on or after 1 July 2022.
If an electric car was ordered prior to 1 July 2022 but was not delivered until after 1 July 2022, it could be eligible for the exemption (even if an employer acquired legal title to the car before 1 July 2022). This is because the car would not be both held and used until after 1 July 2022. Furthermore, a second-hand car may qualify for the exemption if it was first purchased new on or after 1 July 2022.
Our thoughts
Employers who provide vehicles to employees and are incurring FBT liabilities for private use could consider transitioning some or all of their fleet to zero or low emissions vehicles to take advantage of the exemption (the transition may come along with some added costs which you will need to consider). Prior to any transition, it is important to ensure the vehicles meet the eligibility criteria for the FBT exemption.
Further, during the 2022-23 income year businesses have access to the temporary full expensing provisions which may allow them to claim the full cost of eligible assets (which includes ‘cars’) subject to the depreciation cost limit (set at $64,741 for the 2022-23 income year). The balance above the cost limit cannot be depreciated and is non-deductible to the business, also noting GST input tax credits above the car cost limit cannot be claimed. At this stage, the temporary full expensing provisions end on 30 June 2023 and it is important for businesses to have the vehicle delivered and ready to use by 30 June 2023 to ensure they can utilise the temporary full expensing provisions – this may prove challenging in the current climate.
From an individual’s perspective, if you are considering the purchase of an electric vehicle, it may be beneficial to speak to your employer and professional advisors on whether salary packaging an electric vehicle subject to the concession works for you and your circumstances.
In addition to the above, it may be also useful to note many State Governments also have rebates in relation to electric vehicles which may assist your circumstance.
More information
The Bill has been referred to the Economics Legislation Committee which is currently undertaking an inquiry and will submit its report to the Senate on 21 September 2022. We recommend waiting for this Bill to become law before making any decisions in relation to purchasing an electric vehicle.
If you would like to find out more, or would like to discuss your circumstances, please contact your local Moore Australia advisor.