New legislation before Parliament, if enacted, will make zero or low emission vehicles FBT-free. We explore who can access the concession and how.
Electric vehicles (EV) represent just under 2% of the new car market in Australia but it is a rapidly growing sector with a 62.3% jump in new EV registrations between 2020 and 2021.
Making EVs FBT-free is just the first step in the Government’s plan to make zero and low emission vehicles the car of choice for Australians, focussing on affordability and overcoming “range anxiety” by:
- Cutting import tariffs
- Placing EV fast chargers once every 150 kilometres on the nation’s highways
- Creating a national Hydrogen Highways refuelling network, to deliver stations on Australia’s busiest freight routes
- Converting the Commonwealth fleet to 75% no-emissions vehicles
It is on this last point, fleet cars, that the FBT exemption on EVs is targeted. In Australia, business account for around 40% of light vehicle sales according to a research report by Griffith and Monash Universities. However, EV sales to business fleets comprised a mere 0.08% of the market in 2020. The Government can control what it purchases and has committed to converting its fleet to no-emission vehicles, but for the private sector, there is a wide gap between the total cost of ownership of EVs and traditional combustion engine vehicles. It’s more expensive overall and the Government is looking to reduce that impediment through the FBT system.
Can I salary sacrifice an electric car?
Assuming your employer agrees, and the car meets the criteria, salary packaging is an option. While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available. In order for a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing.
Government modelling suggests that for individuals using a salary sacrifice arrangement to pay for a $50,000 electric vehicle, the saving would be up to $4,700 a year.
Who cannot access the FBT exemption
Your business structure makes a difference
By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.
Exemption is limited to cars
As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers.
How the EV FBT exemption will work
Read the entire release and detailed information on how the proposed FBT exemption will work read our Flux Advisors August News Update