The Federal Government has introduced a new Bill to exempt from fringe benefits tax (FBT) electric cars made available by employers to employees.
The exemption will only apply where the retail price of the car (and the price of other related supplies which might attract luxury car tax) are below the luxury car tax threshold for fuel efficient cars, which is currently $84,916 for the current income year (2022/2023).
The exemption will apply to electric cars that are first held and used on or after 1 July 2022 and in order to meet the specific criteria to attract the exemption, the car must be either a:
- Battery electric vehicle;
- Hydrogen fuel cell electric vehicle or a;
- Plug-in hybrid electric vehicle.
Although exempt from FBT, the car benefit will still be included for the purposes of calculating an employee’s ‘reportable fringe benefits amount’, which is relevant for various matters, including calculating an employee’s Medicare levy surcharge.
This Bill introduced to parliament on 27 July 2022 is designed to exempt from FBT cars that are zero or low emission (i.e. electric cars) provided to an employee for their private use. The exemption will extend to all car benefits provided to employees (including associated benefits in running the car), although further regard would need to be given to the practicalities around compliance and substantiation in claiming the exemption for running costs. Further, where the FBT exemption applies, State/Territory payroll tax should not be imposed on the provision of the benefit.
Effective salary sacrifice arrangements involving FBT exempt electric cars could increase the after tax pay of employees or provide an “above the line” cost reduction for employers (depending on who would otherwise bear the FBT liability)
It is expected that there will be a significant uptake in employers offering salary sacrifice arrangements involving electric cars in order to attract and retain staff with enhanced remuneration packages subject to both the current supply chain challenges of acquiring an electric car, together with the limited range at present of electric cars that are below the luxury car tax threshold.
Please contact us if you would like to understand the benefits of this new FBT exemption further.
