FBT exemption for electric cars
During the 2022 election campaign, Labor announced its Electric Car Discount policy in order to make electric cars cheaper and increase uptake. As a part of the policy, Labor proposed to exempt electric cars from import tariffs (currently at 5%) as well as fringe benefits tax (FBT).
Labor has recently introduced a Bill that exempts from FBT, cars that are zero or low emissions vehicles made available by employers to current employees, subject to certain conditions being met.
Current FBT law on cars
Under the current law, where a car that is owned or leased (i.e. “held”) by an employer is provided to an employee for private use, a car fringe benefit arises. The car is taken to be available for private use by an employee on any day that:
- the car is actually used for private purposes by the employee; or
- the car is available for private use by the employee
A car that is garaged at an employee’s home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes. Similarly, where the place of employment and residence are one and the same, the car is taken to be available for the private use of the employee.
Proposed FBT exemption for electric cars
When the Bill becomes law, an employer who provides an employee with a car that is a zero or low emissions vehicle for the employee’s use (or that is available for the employee’s use) will not give rise to a car fringe benefit providing certain conditions are met.
A zero or low emission vehicle includes battery electric vehicles, hydrogen fuel cell electric vehicles, and plug-in hybrid electric vehicles.
Qualifying conditions for FBT exemption on electric cars
To qualify for the FBT exemption, the zero or low emission vehicle’s first retail price on or after 1 July 2022 must be less than the relevant year’s luxury car tax threshold for fuel efficient cars. For the 2022-23 financial year, the luxury car tax threshold for fuel efficient cars is $84,916. The qualifying car will also need to be first held and used on or after 1 July 2022. According to the government, the purpose of the policy is to increase the take up of electric cars, and therefore, electric cars in use prior to 1 July 2022 will not be eligible.
There are two tests for the FBT exemption to apply and both have to be met after 1 July 2022:
- the qualifying vehicle was held by the employer after that date; and
- the qualifying vehicle was taken to be available for use after that date.
Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022, but not delivered until after 1 July 2022 would be eligible for the exemption, even if an employer acquired legal title to the car before 1 July 2022. This is because the car would not be both held and used until after 1 July 2022. In addition, a second-hand electric car may qualify for the exemption provided that the car was originally first purchased new on or after 1 July 2022.
Keep up to date with developments
With the Parliament resuming and the government raring to go on its legislative agenda, this will be the first of many legislative changes.
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Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.