FBT-Free Electric Cars

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, focusing on affordability and overcoming “range anxiety” by:

Cutting import tariffs
Placing EV fast chargers once every 150 kilometers on the nation’s highways
Creating a national Hydrogen Highways refueling 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.

Eligibility for FBT Exemption

To be eligible for FBT Exemption the vehicle must:

Low and zero emission cars

Battery electric vehicles;
Hydrogen fuel cell electric vehicles; and
Plug-in hybrid electric vehicles. Be careful here because this doesn’t include all hybrid vehicles. To qualify the car needs to be ‘plug-in’. A car that has an internal combustion engine will not meet requirements unless it is able to be fuelled by a battery that can be recharged by an off-vehicle power source.

The car was first held and used on or after 1 July 2022

Where the car is first held and used on or after 1 July 2022. Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022, but was not delivered until after 1 July 2022 would be eligible for the exemption (even if an employer acquired legal title to the car before 1 July 2022). However, a car delivered to you prior to 1 July 2022 would not qualify.

A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022.

Value below luxury car tax threshold for fuel efficient vehicles

Luxury car tax has never been payable on the importation on the vehicle. (For the 2022-2023 year the GST inclusive limit for fuel efficient vehicles is $84,916). The luxury car tax threshold generally includes GST and customs duty but excludes other items such as service plans, extended warranties, stamp duty and registration.

If an electric car qualifies for the FBT exemption, then associated benefits relating to running the car for the period the car fringe benefit is provided, can also be exempt from FBT.

Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year.

While the measure provides an exemption from FBT, the value of that fringe benefit is still taken into account in determining the reportable fringe benefits amount of the employee. That is, the value of the benefit is reported on the employee’s income statement. While income tax is not paid on this amount, it is used to determine the employee’s adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments.

A note about private use

Whilst the private use of an eligible electric car is exempt from FBT, the value of the fringe benefit must be considered when calculating if an employee has a reportable fringe benefits amount.

If the value of an employee's fringe benefits totals greater than $2,000 then the value must be reported on their payment summary.

This would be the case for a director or an associate even if they are not being paid wages by the company they will still be considered an employee for this purpose.

The reportable fringe benefits is included in the individual tax return and whilst it does not increase your taxable income is used in calculations for a number of offsets, loans and subsidies including (but not limited to);

HELP repayments,
Medicare levy surcharge,
Child support.

Electric Vehicles and Salary Sacrifice

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.

Electric Vehicle State and Territory tax concessions

The Federal Government is not alone in using concessions to encourage electric vehicle ownership.

ACT	The ACT Government offers a stamp duty exemption on new zero emission vehicles, and up to two years free registration for new or second hand zero emission vehicles (registered between 24 May 2021 and before 30 June 2024).
NSW	Reimbursement of stamp duty paid on purchases of new or used full battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs), with a dutiable value up to and including $78,000.
NT	For plug-in electric vehicles (battery and hybrid plug-in), from 1 July 2022 until 30 June 2027, access free registration for new and existing vehicles and a stamp duty concession of up to $1,500 on the first $50,000 of the car’s market/sale value – 3% thereafter.
QLD	Discounted registration duty for hybrid and electric vehicles. And, a limited $3,000 rebate for new eligible zero emission vehicles with a purchase price (dutiable value) of up to $58,000 (including GST) on or after 16 March 2022.
SA	A limited $3,000 subsidy and a 3-year registration exemption on eligible new battery electric and hydrogen fuel cell vehicles first registered from 28 October 2021.
TAS	From 1 July 2022 until 30 June 2022, no stamp duty applies to light electric or hydrogen fuel-cell motor vehicle (including motorcycles). Vehicles with an internal combustion engine do not qualify.
VIC	A limited $3,000 subsidy is available for new eligible zero emission vehicles purchased on or after 2 May 2021. More than 20,000 subsidies are available under the program. Plus, stamp duty for ‘green passenger cars’ is set at the one rate regardless of value ($8.40 per $200 or part thereof). Zero emission vehicles receive a $100 annual registration concession but are also subject to a per kilometre road user charge.
WA	A $3,500 rebate on the purchase of a new zero emission, hydrogen fuel cell or battery light vehicle with a value of up to $70,000 purchased on or after 10 May 2022.

Considering an electric vehicle?

Our accountants can help you understand the ins and outs of electric vehicles and Fringe Benefits Tax.

FBT-Free Electric Cars