Electric Vehicles and Hybrids exempt from FBT
The Federal Government is currently considering draft legislation which will make (non-luxury) electric cars and hybrid cars exempt from fringe benefits tax (FBT).
The proposal is still in its draft phase, but there are some fairly comprehensive details available of what the proposal might look like in practice, and we’re sharing these now so you can be prepared for when the legislation comes into force.
By Michael Mekhitarian
The draft proposal
Remember the FBT year runs from 1 April to 31 March. All FBT returns must be submitted by 21 May, so typically business owners start to get prepared around February/ March in any given year because FBT can be complicated. Remember too, that we’re here to help.
What we know about the new FBT exemption so far is that it will cover what the government has determined ‘low emissions vehicles’ – defined as:
- Battery powered electric vehicles
- Hydrogen fuel cell electric vehicles
- Plug-in hybrid electric vehicles
Second hand cars may qualify, but only if their first retail sale date was 1 July 2022 or later.
The exemption does not cover vehicles other than ‘cars’ as defined for FBT purposes – not larger vehicles or multi-passenger vehicles. Furthermore, the purchase price must be below the luxury car tax threshold for fuel efficient cars which is currently $84,916.00
There will still be a reportable fringe benefits for employees, including for employees of not-for-profit employers. Salary packaging these types of vehicles will not affect their exemption from FBT.
At this stage, there are no other personal tax incentives being offered, but given that low emissions vehicles of all kinds are becoming increasingly popular, particularly as fuel costs rise, the rules may change. There is also increasing pressure on the government to implement a wide range of climate strategies, so watch this space.
Once the legislation passes, the exemptions are set to apply retrospectively from 1 July 2022 – but there will be some restrictions around this.
Salary Sacrificing a low emissions vehicle has significant benefits
Salary sacrificing for employees does offer some significant benefits for your people, so keep this in mind if you’re employing or renegotiating employment contracts in the coming months.
For example, when salary sacrificing, an employee exchanges part of their cash salary in exchange for leasing a low emissions vehicle. Not only does this make the employer look good – by taking a stand for the environment and fulfilling corporate social responsibility obligations too – but can also simultaneously reduce the employee’s overall tax, which is also a benefit as the cost of living rises.
Just remember, before you rush into something like this, make sure it’s good for the business overall. Small businesses are always seeking innovative ways to improve employee satisfaction, but whatever measures you put into place must also fit your long term strategies across the wider business.
For example, when a husband and wife work together, there are considerations around whether it’s better for the business to provide the car (and pay the FBT) or if it’s more advantageous to keep the car ownership personal. It very much depends on your individual circumstances.
Preparing your FBT
Don’t forget that your FBT this year may also be affected by covid lockdowns and closures as well as hybrid working arrangements for staff in 2021 … The ATO does provide a lot of useful information on its website, but if you need help, please don’t hesitate to contact one of our tax professionals.
While the above information on the new FBT exemptions for electric and hybrid vehicles is still yet to be introduced, it offers a lot of food for thought. If you have questions, give us a call on (02) 9687 1042.
We’ll definitely keep you up to date as the legislation comes into force, and any subsequent changes that will potentially affect your reporting.
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