Introduction
Electric Vehicles (EVs) and Fringe Benefits Tax (FBT) are two increasingly important aspects of the Australian business landscape.
Electric Vehicles (EVs): The importance of EVs in Australia is growing due to a combination of environmental, economic, and policy factors. The Australian Government has announced its National Electric Vehicle (EV) Strategy, which aims to increase EV affordability, access to charging stations, and significantly reduce emissions. EVs are seen as a viable and convenient solution in cities, towns, and major holiday destinations, with benefits including reduced fuel costs and higher efficiency. On a national level, EVs can help with Australia’s liquid-fuel energy security, reducing dependence on foreign oil.
Fringe Benefits Tax (FBT): Understanding FBT is vital for any employer in Australia. This tax applies to perks provided to employees—think company cars or special loans. FBT is designed to ensure that employers are not able to avoid their tax obligations by providing non-cash benefits to their employees instead of cash payments. FBT is a separate tax from income tax and is paid by the employer, not the employee. The amount of FBT to pay is calculated by ‘grossing-up’ the taxable value of the benefits provided.
As the adoption of EVs increases, businesses need to understand the FBT implications of providing EVs as a fringe benefit to their employees. This includes understanding how FBT applies to EVs, how to calculate the taxable value of the car benefit, and any FBT exemptions or concessions that may apply. This knowledge can help businesses comply with tax laws, plan for their tax liabilities, and avoid any unexpected costs.
Understanding Electric Vehicles
Electric Vehicles (EVs) are vehicles that are either partially or fully powered by electricity. They are a cleaner alternative to gasoline- or diesel-powered cars and trucks, both in terms of harmful air pollution, and the greenhouse gas emissions that are causing climate change.
There are several benefits for businesses in Australia who switch to EVs:
Lower Running Costs: EVs have lower running costs and require less maintenance than petrol and diesel cars. An average NSW driver is likely to save around $1,000 in running costs per year by switching to an EV.
Reduced Emissions: The transport sector is a significant and growing source of greenhouse gas emissions, making up to 20% of NSW emissions in 2019. EVs typically produce lower tailpipe emissions than conventional vehicles do.
Improved Fuel Security: Australia currently relies heavily on international imports for our liquid fuels. By purchasing an EV, businesses can improve their fuel security by relying on electricity generated in Australia while reducing their liquid fuel costs.
Balanced Energy Supply: Some EVs can act like a home battery, allowing businesses to store excess rooftop solar electricity on sunny days and use that electricity at times when the sun is not shining.
Brand Image: By adopting EVs, businesses can demonstrate their commitment to sustainability and attract customers who prioritize environmentally friendly products and services.
Remember, the transition to EVs should be considered as part of a broader strategy to reduce carbon emissions and achieve sustainability goals. It’s always recommended to seek professional advice when considering this type of investment.
The adoption of electric vehicles (EVs) in Australian businesses is gaining momentum, but there’s still a long way to go. As of 2023, 8.4% of all new cars sold in Australia were EVs, marking a 120% increase compared to 2022. However, the majority of these sales were made up of only three models: the Tesla Model Y, Tesla Model 3, and BYD Atto 3, which together represented over 68% of the EV market.
Despite this growth, Australia’s rates of EV adoption are still far behind other nations. Only 3% of vehicle owners in Australia currently use EVs. 89% of Australians still drive petrol-powered vehicles, 15% drive diesel vehicles, and 4% drive hybrid vehicles.
The Australian Government has announced its National Electric Vehicle (EV) Strategy, which aims to pave the way for greater EV affordability, access to charging stations, and a massive reduction in emissions. The strategy also focuses on expanded EV availability and options for buyers.
However, the limited supply of various EV models in Australia is a significant barrier to adoption. While there are now 91 electric car, van, and ute models available in Australia, most of these are only being supplied in small volumes. This is largely due to Australia not having a New Vehicle Efficiency Standard to ensure car manufacturers increase the supply of EVs to the country.
While the adoption of EVs in Australian businesses is on the rise, there are still significant barriers to overcome. These include the limited variety of EV models available and the need for a New Vehicle Efficiency standard.
The future of Electric Vehicles (EVs) in Australia looks promising, with several trends and predictions indicating a significant growth in the sector.
Market Growth: The Australian Electric Vehicle Market size is estimated at USD 8.49 billion in 2024, and is expected to reach USD 35.41 billion by 2029, growing at a CAGR of 33.06% during the forecast period (2024-2029).
Increasing Sales: Despite the global coronavirus pandemic, electric car sales have proven unexpectedly resilient in comparison to overall new vehicle sales. In 2022, 33,410 electric vehicles were sold in Australia, setting a new high.
Government Initiatives: Eased restrictions coupled with notable initiatives of the government in the form of incentives and relief packages have helped the market regain momentum.
Battery Technology: The cost of batteries, a key component of EVs, is a significant factor influencing the adoption of EVs⁷. The price of cobalt, a key material in batteries, has been rising in recent years.
Charging Infrastructure: The availability of charging infrastructure is another crucial factor. While the number of public charging stations is growing, finding a charger in some areas still needs to be improved.
Ambitious Goals: Raising Australia’s ambition to 76% of new vehicles by 2030 and 100% by 2035, will benefit consumers and the climate.
These trends indicate a bright future for EVs in Australia. However, it’s important to note that the transition to EVs also presents challenges, such as the need for more charging infrastructure and the high initial cost of EVs. Despite these challenges, the benefits of EVs, such as their efficiency and lower emissions, make them an attractive option for the future of transportation in Australia.
Understanding Fringe Benefits Tax
Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees, their employees’ families, or other associates. Here’s how it works:
Definition: FBT is separate from income tax and is calculated on the taxable value of the fringe benefits. A fringe benefit is like a payment to an employee but in a different form than salary or wages.
Types of Fringe Benefits: Examples of fringe benefits include allowing an employee to use a work car for private purposes, paying an employee’s gym membership, providing entertainment by way of free tickets to concerts, reimbursing an expense incurred by an employee, such as school fees, giving an employee a discounted loan, and giving benefits under a salary sacrifice arrangement with an employee.
Who Pays FBT: The employer pays FBT, even if the benefit is provided by a third party under an arrangement with the employer.
Calculation: To work out how much FBT to pay, you ‘gross up’ the taxable value of the benefits you’ve provided. This is equivalent to the gross income your employees would have to earn, at the highest marginal tax rate (including the Medicare levy), to buy the benefits themselves. The FBT you pay is 47% of this ‘grossed-up’ value of the fringe benefits.
FBT Year: As an employer, you must self-assess your FBT liability for the FBT year (1 April to 31 March). If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe.
Remember, this is a general explanation and should not be considered legal or financial advice. It’s always recommended to seek professional advice to understand the implications fully.
Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to their employees, or their employees’ families or other associates. FBT is separate from income tax and is calculated on the taxable value of the fringe benefit.
Here’s how it works:
What is a Fringe Benefit?: A fringe benefit is like a payment to an employee but in a different form to salary or wages. Examples include allowing an employee to use a work car for private purposes, paying an employee’s gym membership, providing entertainment by way of free tickets to concerts, reimbursing an expense incurred by an employee, such as school fees, giving an employee a discounted loan, and giving benefits under a salary sacrifice arrangement with an employee.
Who Receives Fringe Benefits?: FBT applies to fringe benefits provided to your employees, your employees’ families, or other associates. For FBT purposes, an employee includes a current, future, or past employee, a director of a company, and a beneficiary of a trust who works in the business.
Who Pays FBT?: The employer pays FBT, even if the benefit is provided by a third party under an arrangement with the employer.
How Much FBT Do You Pay?: To work out how much FBT to pay, you ‘gross-up’ the taxable value of the benefits you’ve provided. This is equivalent to the gross income your employees would have to earn, at the highest marginal tax rate (including the Medicare levy), to buy the benefits themselves. The FBT you pay is 47% of this ‘grossed-up’ value of the fringe benefits.
Remember, as an employer, you must self-assess your FBT liability for the FBT year (1 April to 31 March). If you have an FBT liability, you must lodge an FBT return and pay the FBT you owe.
In Australia, there are several ways to reduce Fringe Benefits Tax (FBT) liability, including exemptions, concessions, and other strategies.
1. FBT Exemptions:
Work-related items: Certain work-related items, such as portable electronic devices and tools of trade, are exempt from FBT.
Minor benefits exemption: If you can apply the minor benefits exemption to a benefit.
Taxi, ride-sourcing, and public transport exemptions: Travel by your employees in taxis to or from the workplace, or on public transport you operate, may be exempt from FBT.
Emergency assistance: FBT exemptions for emergency assistance including first aid, emergency supplies, and temporary repairs.
Retraining and reskilling exemption: You can claim an FBT exemption for retraining and reskilling redundant employees, redeployment, or job seeking.
Contributions to approved worker entitlement funds: Contributions for employee long service leave, sick leave, or redundancy payments are exempt from FBT.
2. FBT Concessions:
There are two main types of concessions: exemptions (where the good or service is not subject to FBT), and partial concessions (where the taxable value of the good or service is reduced, often by 50 percent).
Ways to Reduce FBT:
Providing benefits that would be deductible for the employee: You do not incur an FBT liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they had paid for it.
Using employee contributions: You can reduce your FBT liability by having your employee contribute towards the cost of a fringe benefit.
Providing a cash bonus: Instead of providing a fringe benefit, you can provide a cash bonus.
Remember, it’s recommended to seek advice from a professional business adviser, lawyer, or accountant before making decisions about FBT.
The Intersection of EVs and FBT
The adoption of Electric Vehicles (EVs) can significantly impact the Fringe Benefits Tax (FBT) for businesses in Australia. Here’s how:
1. FBT Exemption: Businesses and organisations do not need to pay FBT on eligible electric cars and associated car expenses. This exemption applies to electric cars that meet certain conditions, including being a zero or low emissions vehicle, first held and used on or after 1 July 2022, and luxury car tax (LCT) has never been payable on the importation or sale of the car.
2. Reduced Taxable Value: With the FBT exemption for electric vehicles, the taxable value of the car will be reduced to zero, which means the employer will no longer be required to pay FBT on the car. This results in a significant reduction in the cost of owning an EV through a novated lease.
3. Plug-in Hybrid Electric Vehicles: From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low-emissions vehicle under FBT law. However, you can continue to apply the exemption if both the following requirements are met: Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025. You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.
4. Employee Incentives: The FBT exemption for electric cars provides a valuable opportunity for Australian employees to reduce their tax burden while contributing to a cleaner and greener future. By taking advantage of this exemption, employers can offer attractive incentives to their employees and encourage the adoption of electric vehicles.
It’s important to note that the Australian Taxation Office (ATO) will complete a review of this exemption by mid-2027 to consider electric car take-up. Therefore, businesses should stay updated with the latest regulations and guidelines provided by the ATO.
In Australia, there are several tax incentives for businesses that invest in electric vehicles (EVs):
1. Fringe Benefits Tax (FBT) Exemption: The Treasury Laws Amendment (Electric Car Discount) Bill passed through the Federal Parliament in November 2022 provides FBT exemptions for fleets and novated leases. The Government will apply the exemption retrospectively to eligible cars first used on or after July 1, 2022². The FBT savings amount has grown to $9000 per annum for an employer or $4700 for an individual with a salary sacrifice agreement for a $50K electric vehicle.
2. Luxury Car Tax (LCT) Threshold: The LCT threshold for low-emission vehicles has been raised to $89,332 for the 2023-24 financial year.
3. Import Tariff Removal: Alongside the removal of the FBT, the five per cent import tariff for EVs priced under the LCT limit has been cut. Cutting import tariffs drops purchase prices by a further $2500.
4. State-Level Incentives: Some states in Australia also offer incentives for EVs. For example, South Australia’s $3000 electric vehicle subsidy will end on January 1, 2024, for new purchases. Tasmania has introduced 375 $2000 electric vehicle grants.
Please note that these are general examples and the specifics can vary depending on the circumstances. It’s always recommended to consult with a tax professional or advisor for personalized advice.
A. Step-by-step guide on how to calculate FBT for EVs
1. Check Eligibility: You do not pay FBT if you provide private use of an electric car that meets all the following conditions:
- The car is a zero or low emissions vehicle.
- The first time the car is both held and used is on or after 1 July 2022.
- The car is used by a current employee or their associates (such as family members).
- Luxury car tax (LCT) has never been payable on the importation or sale of the car.
2. Calculate EV Charging Cost: The EV charging cost is calculated as total km travelled x 4.2 cents per km. For example, if the total km travelled is 27,037, then the EV charging cost would be 27,037 x 4.2c per km = $1135.
3. Calculate Taxable Value for FBT Purposes: The taxable value for FBT purposes is calculated as follows:
- EV base value multiplied by the statutory formula percentage flagged earlier.
- Multiply the result by the days held in the FBT year divided by 365.
- Finally, deduct the employee contribution.
4. Lodge Your FBT Return: Lodge your FBT return with the Australian Taxation Office (ATO).
5. Pay the FBT Amount: Pay the FBT amount to the ATO.
Please note that this is a general guide and the actual calculation may vary based on specific circumstances. Always consult with a tax professional for advice tailored to your specific circumstances.
B. Potential EV and FBT savings and benefits for businesses
In Australia, businesses can benefit from significant savings related to Electric Vehicles (EVs) and Fringe Benefits Tax (FBT). Here are some key points:
1. FBT Exemption: From 1 July 2022, businesses do not need to pay FBT on eligible electric cars and associated car expenses. This exemption applies to private use of an electric car that meets several conditions:
- The car is a zero or low-emissions vehicle.
- The first time the car is both held and used is on or after 1 July 2022.
- The car is used by a current employee or their associates (such as family members).
- Luxury Car Tax (LCT) has never been payable on the importation or sale of the car.
- Benefits provided under a salary packaging arrangement are included in the exemption.
2. Eligible Vehicles: A vehicle is considered a zero or low emissions vehicle if it is a battery electric vehicle, a hydrogen fuel cell electric vehicle, or a plug-in hybrid electric vehicle. However, from 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low-emissions vehicle under FBT law.
3. Potential Savings: The FBT exemption can lead to substantial savings for businesses. For instance, based on an EV valued at $48,000, the FBT exemption would provide an annual saving to the employer of almost $9,400. For an EV valued at $80,000, the annual savings to the employer would be over $15,600.
4. Review of Exemption: The government will complete a review of this exemption by mid-2027 to consider electric car take-up.
These benefits not only make EVs a financially attractive option for businesses but also contribute to environmental sustainability. However, businesses should also consider other factors such as charging infrastructure and range capabilities when deciding to switch to EVs.
Conclusion
The landscape of Electric Vehicles (EVs) and Fringe Benefits Tax (FBT) in Australia is rapidly evolving, presenting both challenges and opportunities. As we navigate this new terrain, it’s crucial to stay informed and make strategic decisions. Whether you’re an individual considering an EV purchase or a business grappling with FBT implications, professional advice can make all the difference.
Don’t navigate these complex waters alone. Contact JCA Accountants today for expert guidance tailored to your unique circumstances. Their team of dedicated professionals is ready to assist you in making informed decisions that align with your financial goals. Remember, the road to a sustainable and financially sound future begins with a single step. Make that step today with JCA Accountants.
