By Nicole Gill – Senior Client Advisor, ABA Advice Beyond Accounting
If you would like to buy a new car through Salary Sacrifice and not have to pay FBT (Fringe Benefits Tax), it may be time to go green!
Electric vehicles (EVs) are becoming more popular and affordable in Australia, thanks to the environmental and economic benefits they offer. However, many business owners and employees may not be aware of the tax savings of using EVs for work or personal purposes. How do you salary sacrifice an EV and not pay any Fringe Benefits Tax? We’ll share all the details.
What is FBT (Fringe Benefits Tax)?
FBT is a tax that employers pay on certain benefits they provide to their employees or their employees’ associates (such as family members) at a rate of up to 47% based on the value of a benefit. These benefits can be in the form of goods, services, entertainment, or the use of a car or other vehicle. FBT is calculated on the taxable value of the benefit, which depends on the type and value of the benefit.
The ATO considers EVs as cars for FBT purposes, which means that normally if you provide an EV to your employee or their associate for private use, you would have to pay FBT on the benefit. The private use of a car includes commuting to and from work, as well as any personal trips.
How can you claim FBT exemptions for EVs?
The good news is that from 1st July 2022, the ATO have introduced an FBT exemption for EVs that meet certain criteria. These exemptions can significantly reduce or eliminate your FBT liability and make EVs more attractive and affordable for your business and employees.
The car must meet ALL of the following conditions in order to be eligible for the exemption:
- The car has zero or low emissions
To satisfy this criteria, the car must be either
- A battery electric car
- A hydrogen fuel cell electric car OR
- A plug in hybrid electric car
- The car must be used for the first time after 1 July 2022
This means that second hand EVs are not included in this exemption if they were registered and used prior to 1 July 2022
- The car is used by a current employee or their family members
- Luxury Car Tax (LCT) has NEVER been paid on the car, either in the sale price or when it was imported.
This is an important distinction. You can purchase a second hand car that was first used after 1 July 2022 and be eligible for the exemption, but only if the ORIGINAL cost of the car (not the price you pay) was under the Luxury Car Tax Threshold.
What is Luxury Car Tax (LCT)
LCT is a tax that applies to cars with a value above a certain threshold, which is adjusted annually. For the 2023-24 financial year, the LCT threshold is $89,332 for fuel-efficient vehicles and $76,950 for other vehicles. LCT is charged at 33% of the amount above the threshold.
What can you claim
This exemption is available for all expenses related to the running of an EV including novated lease payments, registration, insurance, repairs and maintenance and fuel. The big winner here is that electricity to charge your electric car is considered ‘fuel’ under these rules so can be paid as an FBT exempt benefit
Exceptions to the Rule
The guidelines around this exemption are quite specific and there is not a lot of room for interpretation. The following are specifically excluded from this exemption:
- Motorbikes and Scooters
- Vehicles with an original cost price above the LCT limit ($89,332 for 2023/24)
- Plug-in Hybrid Vehicles purchased after 1 April 2025
- Cars that were in use before 1 July 2022
- Accessories that relate to the car, specifically home charging stations
Other things to note
While these benefits are not included as part of your taxable income, it is important to note that they will still be shown as a Reportable Fringe Benefit on your Payment Summary from your employer.
While you do not pay income tax on this, the amount is included when calculating repayments on HECS or HELP debts as well as your medicare levy surcharge.
What are the benefits of FBT exemptions for EVs?
The FBT exemptions for EVs can provide significant benefits for both employers and employees. For employers, the FBT exemptions can lower the cost of providing EVs to their employees and encourage them to adopt more environmentally friendly and fuel-efficient vehicles for their business. For employees, the FBT exemptions can increase their after-tax income and allow them to enjoy the benefits of driving an EV without paying extra tax.
EVs are a great way to reduce your carbon footprint and save money on fuel and maintenance costs. However, you also need to be aware of the tax implications of using EVs for work or personal purposes. The ATO provides FBT exemptions for EVs that meet certain criteria, which can lower or eliminate your FBT liability and make EVs more attractive and affordable for your business and employees.
If you need any assistance or advice on FBT exemptions for EVs, please contact the knowledgeable team at ABA Advice Beyond Accounting today. They are a qualified and experienced tax agent who can help you with all your tax needs.
If you are considering replacing your vehicle that is predominantly used for personal use, it may be worth considering an EV vehicle so that the cost of this vehicle, providing it fits the parameters above, can be tax deductible. Many lenders also offer a discounted interest rate for Electric Vehicles as well, which may even save you more money. With more and more EV’s becoming far more cost effective a well, there hasn’t been a better time to consider upgrading that second vehicles to an EV. If you would like a finance quote on a new Electric Vehicle, please let us know and we can help get you behind the wheel sooner.
Disclaimer: The information contained in this article is provided by a qualified and registered tax accountant for education purposes only. It is general in nature and should not be used as a substitute for professional tax advice relevant to your individual circumstances. Please consult your personal tax adviser before making any decisions or taking any actions based on the information in this article. The author and Loanwize are not liable for any consequences arising from your reliance on the information in this article.
