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In late 2022, a concession was introduced to enable employers to provide some electric vehicles to employees without incurring the 47% fringe benefits tax (FBT) on private use.
Eligibility Criteria
The exemption applies to the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars if:
The value of the car is below the luxury car tax (LCT) threshold for fuel efficient vehicles ($89,332 for 2023-24 financial year) at the time it is first sold in a retail sale; and
The car is both first held and used on or after 1 July 2022.
Be aware
Where it sounds very attractive to the business to take the advantages from the tax concession, there are some tricky areas that businesses need to be aware.
Plug-in hydrid EV
From 31 March 2025, the FBT exemption will no longer apply to plug-in hybrid electric vehicles unless the vehicle met the conditions for the exemption before this date and there is already a binding agreement to continue to use the vehicle privately after this date.
Only apply to employees
For the FBT exemption to apply, the vehicle must be supplied by the employer to an employee (including under a salary sacrifice agreement). Partners of a partnership and sole traders are not employees and cannot access the exemption personally.
Home charging stations
The FBT exemption includes associated benefits such as registration, insurance, repairs or maintenance, but it does not include a charging station at the employee’s home. If the employer instals a home charging station at the employee’s home or pays for the cost, then this is a separate fringe benefit.
Cost of electricity
The ATO’s short-cut method can potentially be applied to calculate reportable fringe benefit amounts and applies a rate per kilometre. If the short-cut method is not used, you need to have a viable method of isolating and calculating the electricity consumption of the car.
Record keeping requirements
FBT might not apply but you do the paperwork as if it did. 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 the employees don’t pay income tax on reportable fringe benefits, it is used to determine their 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.
Other Eligibility Issues
If LCT applies to the car it will never qualify for the FBT exemption. For example, if the EV failed the eligibility criteria in 2022-23 when it was first purchased because it was above the luxury car limit of $84,916, the fact that it resold in 2023-24 for $50,000 does not make it eligible for the exemption on resale. Likewise, if the car was used by anyone (including a previous owner) before 1 July 2022 then it will probably never qualify for the FBT exemption.
The exemption does not apply if the employee directly purchases or leases the EV. If an employee purchases or leases the EV directly, and the employer reimburses them under a salary sacrifice arrangement, the FBT exemption does not apply because this is not a car fringe benefit. However, the exemption can potentially apply to novated lease arrangements if they are structured carefully.
Not all electric vehicles are cars. To qualify for the exemption, the EV needs to be a car – electric bikes and scooters do not count, nor do vehicles designed to carry a load of 1 tonne or more or that carry 9 passengers or more.
For businesses intending to leverage this concession, careful consideration of the eligibility criteria and exclusions is critical. This article provides clarity and guidance on the FBT exemption for electric vehicles. We will continue focus on providing relevant updates and some practical guidance to assist you on your tax compliance.