Electric cars becoming FBT free from 1 July 2022?

Electric cars becoming FBT free from 1 July 2022?
Draft legislation (Treasury Laws Amendment (Electric Car Discount) Bill 2022) has been introduced to Parliament by the Federal Government which has followed through with their election commitment to allow certain electric cars to be exempt from Fringe Benefits Tax (FBT).

While it’s important to note the legislation is not yet passed as law, it presents a new key tax planning consideration for both employers and employees to save tax and provide an opportunity for employers to increase their attractiveness as an employer.

How will the proposed electric vehicle FBT exemption work?
In very broad terms, the FBT exemption is intended to apply to cars provided by an employer to an employee under the following conditions:

1. The exemption will be available for battery electric vehicles, hydrogen fuel cell electric vehicles and plug-in hybrid electric vehicles

1. The exemption will be available for eligible electric cars with a retail price below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022-23) where the car was first made available for use on or after 1 July 2022. Please note, a car delivered to you prior to 1 July 2022 would not qualify. Likewise, a second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022

Example – Employers provide employees with a company car
A business purchases an electric vehicle and provides it to an employee as a company car.  The car was purchased for $50,000 and the estimated FBT exemption would save the employer up to $9,000 a year per car.

For the employee, 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.

Example – Employer and Employee agree to salary sacrifice the car
The same electric vehicle is purchased for $50,000 and is provided to an employee using a salary sacrifice arrangement, the employee’s saving would be up to $4,700 a year. A salary sacrifice arrangement involves the individual employee reducing their gross income to pay for the car, which therefore effectively reduces their personal tax bill.

Any other tax deductions?
If eligible, businesses may choose to claim a full tax deduction for the electric cars up to $64,741 for the 2022-23 year under the “temporary full expensing provisions.” At this stage, the temporary full expensing provisions end on 30 June 2023.
​
It is important to note that legislation is still pending so don’t rush out and buy until this becomes law – however, if you are looking for assistance on how you could benefit, please do not hesitate to contact us.