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Federal government makes electric vehicles exempt from fringe benefits tax – Sales Taxes: VAT, GST

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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

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.

This article is issued as general commentary – please
contact us about your specific circumstances.

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