New FBT exemption for electric vehicles

On 12 December 2022, the Treasury Laws Amendment (Electric Car Discount) Bill 2022 was enacted to provide an FBT exemption in respect of eligible electric vehicles. The exemption retrospectively applies to eligible car benefits provided from 1 July 2022.

The objective of the exemption is to encourage a greater take up of electric cars by making them more affordable and to reduce Australia’s carbon emissions from the transport sector. The exemption will be reviewed after three years to consider the electric car take-up. The ATO has indicated the Government will complete a review by mid-2027.

When does the FBT exemption apply?

The new s. 8A of the Fringe Benefits Tax (Assessment) Act 1986 provides that a car benefit is an exempt benefit in relation to a year of tax if:

1. the benefit is provided in the year of tax in respect of the employment of a current employee; and
2. the car is a zero or low emissions vehicle when the benefit is provided; and
3. the value of the car, at the first retail sale must be below the luxury car tax threshold for fuel efficient cars, — which is $84,916 for the 2022-23 income year

Note
The FBT exemption relates to car fringe benefits and therefore will only apply to vehicles that are ‘cars’ for FBT purposes.

What is a zero or low emissions vehicle?

A zero or low emissions vehicle, which is eligible for the FBT exemption, is defined as:

(a) a battery electric vehicle, or

(b) a hydrogen fuel cell electric vehicle, or

(c) a plug-in hybrid electric vehicle.

The legislation sets out the criteria defining each of the three categories of zero or low emission vehicles.

Plug-in hybrid electric vehicles — exemption to end 31 March 2025

From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law. However, the exemption will continue to apply if the use of the vehicle was exempt before that date, and there is a financially binding commitment to continue providing private use of the vehicle from that date.

Held and used on or after 1 July 2022

The exemption applies to a car benefit only if the earliest time when a person both held and used the car was at or after the start of 1 July 2022.

This involves two distinct tests:

1. Whether the car was held by a person.
2. Whether the car was used, in that the car was applied to, or taken to be available for use.

The exemption will only apply if the first time that both of these tests are met is after 1 July 2022.

Associated car expenses

The FBT exemption extends to any associated benefit in running the eligible car for the period the car fringe benefit was provided, e.g. registration, insurance, repairs and maintenance, and fuel (including electricity).

Note:
A home charging station is not a car expense associated with providing a car fringe benefit for electric cars. It may need to be considered as either property fringe benefit or an expense payment fringe benefit.

Other implications

• Benefits provided under a salary packaging arrangement are included in the exemption.
• The car limit ($64,741 for 2022–23) applies to cars that are FBT exempt, to reduce the first element of cost for depreciation purposes. .The value of the electric car benefit will be added to the employee’s reportable fringe benefit amount for each FBT year.

Further resources and upcoming training sessions

ATO webpage ‘Fringe benefits tax — Electric cars exemption’ (QC 71132)

TaxBanter’s online Monthly Special Topic to be held on 5 April 2023 is Using Cars. This session will provide an in-depth explanation of the exemption, including:

• the three categories of eligible electric vehicles
• when the exemption applies
• when an exemption will continue to apply to a plug-in hybrid vehicle beyond 31 March 2025.

Register or learn more through the link below.