Legislation enabling electric car FBT exemption on zero or low-emission electric vehicles passed Parliament on 28 November 2022. Let’s explore how the new rules work.
How the EV FBT exemption works
The FBT exemption applies to three types of electric vehicles:
- Battery electric vehicles, which use only an electric motor for propulsion and do not have a fuel cell or internal combustion engine.
- Hydrogen fuel cell electric vehicles, which use only an electric motor for propulsion and have a fuel cell for converting hydrogen to electricity.
- Plug-in hybrid electric vehicles, which have both an electric motor and an internal combustion engine for either or both propulsion and generating electrical energy. These vehicles must be able to recharge their battery from an external power source. (Note that the FBT exemption for plug-in hybrid electric vehicles will end on March 31, 2025.)
In addition an electric car must be held and used on or after July 1, 2022. If the car was ordered before July 1, 2022 but delivered after that date, it would be eligible for the exemption as long as the other conditions are met. However, a car delivered before July 1, 2022 would not qualify. A second-hand electric car may also be eligible for the exemption if it was purchased new on or after July 1, 2022.
To qualify, the car’s value at the time of its first retail sale must be below the luxury car tax threshold for fuel-efficient vehicles, which is $84,916 in 2022-23. The threshold generally includes GST and customs duty but not other costs such as service plans and registration fees.
Electric cars that are eligible for the FBT exemption may also be exempt from associated benefits, such as running costs, during the period when the car is provided as a fringe benefit.
According to government estimates, if an employer provides an electric car worth approximately $50,000 through the FBT arrangement, they could save up to $9,000 yearly.
While the measure provides an exemption from FBT, the value of that fringe benefit is still taken into account in determining the reportable fringe benefits amount of the employee. That is, the value of the benefit is reported on the employee’s income statement. While income tax is not paid on this amount, it is used to determine the employee’s adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments.
Can I salary sacrifice an electric car?
If your employer agrees and the car meets certain criteria, salary packaging is an option for purchasing an electric car. While some FBT concessions are not available under a salary sacrifice arrangement, the exemption for electric cars still applies. To be effective for tax purposes, the salary sacrifice arrangement must be agreed upon and documented before the employee earns the income they are sacrificing.
Government estimates show that individuals using a salary sacrifice arrangement to pay for a $50,000 EV could save up to $4,700 per year.
Who cannot access the FBT exemption
The business structure affects eligibility for the FBT exemption. The exemption only applies when an employer provides a car to an employee. Partners in a partnership and sole traders are not eligible for the exemption because they are not employees of the business. For trust beneficiaries and company shareholders, it is important to determine whether the car is provided to them in their capacity as an employee or director of the entity.
Exemption is limited to cars
The FBT exemption only relates to cars, which are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers. The FBT system contains some other exemptions which can potentially apply to vehicles that are not classified as cars if certain conditions can be satisfied.
EV State and Territory Tax Concessions
The electric car FBT exemption from the Federal Government isn’t the only incentive available:
ACT
The ACT Government offers a stamp duty exemption on new zero emission vehicles, and up to two years free registration for new or second hand zero emission vehicles (registered between 24 May 2021 and before 30 June 2024). See the strategy here.
New South Wales
Reimbursement of stamp duty paid on purchases of new or used full battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs), with a dutiable value up to and including $78,000. You can apply for a refund for vehicles registered between 1 Sept 2021 and 14 August 2022. The reduction is automatically applied from 15 August 2022. See the strategy here.
Northern Territory
Owners of plug-in electric vehicles (battery and hybrid plug-in), from 1 July 2022 until 30 June 2027, can access free registration for new and existing vehicles and a stamp duty concession of up to $1,500 on the first $50,000 of the car’s market/sale value – 3% thereafter.
Queensland
Discounted registration duty for electric and hydrogen vehicles. And, a limited $3,000 rebate for new eligible zero emission vehicles with a purchase price (dutiable value) of up to $58,000 (including GST) on or after 16 March 2022. Does not apply to hybrid vehicles.
South Australia
A limited $3,000 subsidy and a 3-year registration exemption on eligible new battery electric and hydrogen fuel cell vehicles first registered from 28 October 2021.
Tasmania
From 1 July 2021 until 30 June 2023, no stamp duty applies to light electric or hydrogen fuel-cell motor vehicles (including motorcycles). Vehicles with an internal combustion engine do not qualify.
Victoria
A limited $3,000 subsidy is available for new eligible zero emission vehicles purchased on or after 2 May 2021. More than 20,000 subsidies are available under the program. Plus, stamp duty for ‘green passenger cars’ is set at the one rate regardless of value ($8.40 per $200 or part thereof).
Zero emission vehicles receive a $100 annual registration concession but are also subject to a per kilometre road user charge.
Western Australia
A $3,500 rebate on the purchase of a new zero emission, hydrogen fuel cell or battery light vehicle with a value of up to $70,000 purchased on or after 10 May 2022.
