FBT Exemption on Electric Cars

The new electric vehicle exemption - what this means for you and your business?

On 12 December 2022, the Treasury Laws Amendment (Electric Car Discount) Act 2022 (the Act) received Royal Assent. The Act provides the legislative framework supporting the Government’s pre-election policy announcement to provide a Fringe Benefits Tax (FBT) exemption for certain electric cars.

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What benefit can this have to a small business owner?

The FBT exemption can provide a financial benefit to both business owners & employees. The FBT exemption will allow employers to provide electric cars to their employees without incurring FBT on the benefit provided. This could mean that businesses, who may previously have been unable to provide vehicles as an employment benefit, can now do so without incurring FBT costs.  This could be a significant incentive to attracting & retaining employees.

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Your business structure will make a difference

The FBT exemption is applicable only when a car is provided by an employer to an employee. Unfortunately, partners of a partnership and sole traders cannot benefit from the FBT exemption since they are not considered employees. It is crucial to determine whether beneficiaries of trusts or shareholders of companies receive cars in their capacity as employees or directors of the entity in order to be eligible for the FBT exemption.

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Which vehicles are eligible?

You do not pay FBT if you provide private use of an electric car that meets all the following conditions:

• the car is a zero or low emissions vehicle;
• the first time the car is both held and used is on or after 1 July 2022;
• the car is used by a current employee or their associates (such as family members);
• luxury car tax (LCT) has never been payable on the importation or sale of the car.

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Exemption is limited to cars

The exemption only applies to motor vehicles that meet the specific criteria above. Vehicles outside of this definition aren't included (eg. vans). Motorcycles & scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.

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Associated car expenses?

The following car expenses are exempt from FBT if they are provided for an eligible electric car:

• registration;
• insurance;
• repairs or maintenance;
• fuel (including electricity to charge and run electric cars).

You may be able to reduce the FBT on any items that aren’t exempt car expenses, if the expenditure would have been deductible to the employee had they incurred it themselves. This is called the otherwise deductible rule.

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Example of how the benefit works

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Conclusion

The FBT exemption for electric cars provides an opportunity to businesses of all sizes to provide a benefit to employees without incurring FBT costs. It is important to understand the limitations and qualifications of FBT, as well as which vehicles are eligible, in order to take advantage of this tax saving measure. To find out more about FBT exemptions and how they apply to you or your business, contact an experienced accountant today. They can help you make the best decisions when it comes to FBT and ensure that your business utilises tax benefits where available.

This article should not be taken as financial advice or taxation advice - please speak with a qualified professional for specific advice regarding FBT exemptions for electric cars.

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How we can help?

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