Electric Vehicles and Fringe Benefits Tax (FBT) Exemptions

Electric Vehicles and Fringe Benefits Tax (FBT) Exemptions

Electric Vehicle FBT Exemption: What’s Behind the Fashionable Concession? Your Questions Answered


What type of Electric Vehicle is exempt?

First, the Electric Vehicle  must be a “car” as the FBT law defines it.

A “car” is:

  • A vehicle designed to carry less than 1 tonne, and
  • A vehicle designed to carry less than 8 passengers

Electric utes over 1 tonne are not “cars” and are therefore not exempt under these rules – there are special FBT rules for utes and don’t assume they are always exempt from FBT.

Motorcycles, scooters and similar vehicles are not “cars.”

Second, the car must be a Zero or low emissions vehicle that is:

  • A Battery electric vehicle
  • A Hydrogen fuel cell electric vehicle, or
  • A Plug-in hybrid electric vehicle – but only until 31 March 2025.

From 1 April 2025, a plug-in hybrid EV will not be considered a zero or low emissions vehicle under these rules unless:

  • Use of the hybrid vehicle was exempt before 1 April 2025, and
  • You have a financially binding commitment to continue providing the vehicle on or after 1 April 2025. An option to extend the agreement beyond 1 April 2025 doesn’t make it a binding agreement.

When does an EV become exempt?

The electric vehicle must be held and used for the FIRST time on or after 1 July 2022.

It cannot be an existing EV you purchased before that date or supplied to an employee before that date.

However, it is okay to have ordered a vehicle before 1 July 2022 and have it delivered after that date.

The car benefit must be provided to a person who receives or is entitled to receive salary or wages in your business:

  • A current employee (or their associate eg spouse)
  • Not a future or former employee

Careful – buying a car for yourself as a shareholder of your company (but not as an employee) may result in falling into the Div7A trap!

An EV is held where it is:

  • Owned (including Hire Purchase/Chattel Mortgage)
  • Leased including novated lease, or
  • Otherwise made available to the provider

An EV is not “held” where it is owned by the employee. However, the exemption is available where the car fringe benefit is provided under a salary packaging arrangement between employer and employee (say, in the case of a novated lease).

What is the limit on the Cost price of the EV?

If the EV was subject to Luxury Car Tax at any time, it is not exempt. The LCT threshold for Fuel-efficient vehicles for the 2023FY is $84,916.

What if I buy a second-hand vehicle?

You need to do some research as there is no exemption if:

  • it was originally purchased by the previous owners before 1 July 2022
  • the car was EVER subject to the Luxury Car Tax (LCT).

So, you must research its history and assess whether it would have been subject to LCT if purchased new. This can be a tricky process as some EVs hover close to the LCT threshold, and the threshold includes additional costs such as dealer charges and added options.

What about all the costs of running the electric vehicle – are they exempt from FBT too?

The car expense benefits that go with the car benefit are exempt. These are:

  • Registration
  • Insurance
  • Repairs and maintenance
  • Fuel and electricity to charge and run the EV

Will a new battery qualify as a “Repair” and therefore an exempt car expense benefit?

That depends.

Over time, all rechargeable batteries will inevitably lose capacity, a phenomenon known as battery degradation. Typically, you won’t have to replace the battery for at least 8-10 years. However, the current cost of a new battery pack can be expensive, ranging between $12-20K.

Technology is rapidly advancing in energy density and long-term battery health. This means that newer batteries may offer more driving range, making your current EV more relevant for a longer time.

What does the ATO say about buying a new battery in relation to FBT?

  • A replacement battery may still be a repair where it adds, in only a minor and incidental way, to the overall efficiency of function of the vehicle ie, same power, same storage same lifecycle.
  • If the new battery has significantly more power and energy storage and a longer lifecycle, it would be a capital expense rather than a repair and not an exempt cost of running the EV.

Is the Government going to keep this scheme going indefinitely?

The government will start reviewing the EV FBT exemption rules by December 2025 and complete a report by mid 2027 on the uptake of EV’s and efficacy of the policy. This gives them an out if it becomes too costly or just isn’t popular.

There is also a chance the rules are wound back after a change in government within the next 2 years, but grandfathering rules may apply to existing car benefits.

Where can I charge my electric vehicle so that the charging cost is exempt?

  • A commercial charge station, or
  • The employer’s premises

Can I reimburse an employee for the electricity costs of charging the EV at their home?

The ATO fact sheet does not provide specific guidance on electricity charging costs incurred by the employee (i.e, charging at their home) and reimbursed by the employer. But electricity to charge and run the electric vehicle is likely to qualify for the car expense exemption – as long as the EV being charged is provided as a car benefit. 

The ATO recently released a draft guideline, PCG 2023/D1, to assist determining the cost of charging electric cars at home. As of April 1st, 2022, the ATO has established a rate of 4.20 cents per km. The guideline outlines how employers can calculate the reportable fringe benefit (RFBA) of an employee’s electric vehicle and why it’s important to consider why an employee driving an exempt EV may need to maintain a log book.

Is an electric vehicle charging station at the employee’s home exempt?

No. The purchase of an electric charging station is not a car expense and therefore not exempt from FBT. If you give your employee an electric charging station or reimburse them for it, it would be taxed as a property or expense fringe benefit.

But what if I add the Charging station to my lease arrangement?

It would need to be separately identified to ensure the FBT concession does not apply to the portion attributable to the charging station.

What else is not an exempt car expense?

  • Car parking expenses incurred when charging the vehicle at a commercial parking facility.
  • GPS subscription is not a car running expense and is therefore not exempt from FBT.

What accessories are non-exempt?

Business accessories you add after you bought the EV are exempt. An example would be a GPS fitted in a salesperson’s car.

Non-business accessories added after the initial purchase of the EV are not exempt and are added to the base value of the car for working out the taxable value. Examples include:

  • Upgrade of Electric charging cable that didn’t come with the car
  • Alloy wheels
  • Rear spoilers
  • Seat covers
  • Paint, fabric, rust protection
  • Window tinting
  • Personalised Number Plates

So, non-exempt electric vehicle benefits related to the EV are taxable fringe benefits. You will be required to work out the taxable value of the benefit and then potentially pay FBT.

Reportable Fringe Benefits – If there is no FBT on my EV, why do I still have to calculate it?

You must report the value of car benefits arising from the private use of electric vehicles by your employees even though they may be exempt vehicles. The grossed up taxable value is included in the employee’s annual wages summary and included in their tax return for income tests and thresholds relating to:

  • Medicare levy surcharge
  • Health Insurance Rebates
  • Child Support Assessments
  • Div293 taxes
  • Family Assistance
  • Other government benefits and obligations.

The administration of working out what the FBT value of the EV is still required even if the exemption can be claimed.

If you have bought or are considering buying an EV for your employees or would like to salary package an EV, contact us for specific advice on your situation.

Disclaimer: This information is of a general nature only. It is not intended to constitute professional advice and cannot be relied upon by any party as advice. Inline Partners accepts no responsibility for any loss or damage suffered by any party in relying on this information.

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