How Does Tax Apply to Electric Cars?

Just in time for the Fringe Benefits Tax (FBT) year that started on 1st April, the Australian Taxation Office (ATO) has released new details on electric vehicles.

The FTB exemption for electric cars

Starting from 1 July 2022, employers may be eligible for an FBT exemption if they provide their employees with the use of a car that is classified as a zero or low emissions vehicle, regardless of whether the benefit is offered in conjunction with a salary sacrifice agreement or not. The FBT exemption should normally apply where:

• The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and
• The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn’t made available to employees until 1 July 2022 or later.

Th exemption also includes associated benefits such as:

• Registration
• Insurance
• Repairs or maintenance
• Fuel, including electricity to charge and run the vehicle

But it does not include a charging station (see How do the tax rules apply to home charging units?).

Although the Fringe Benefits Tax (FBT) exemption on electric vehicles (EVs) applies to employers, it’s important to note that the value of the fringe benefit is still considered when calculating the reportable fringe benefits of the employee. This means that the value of the benefit will be included in the employee’s income statement. While reportable fringe benefits are not subject to income tax, they are used to determine the adjusted taxable income for various purposes such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and some social security payments.

Who the FBT exemption does not apply to

In accordance with the FBT legislation, the exemption for zero or low emissions vehicles is limited to employer-provided cars for employees. As such, sole traders and partners of partnerships cannot benefit from this exemption on a personal level. If you are a shareholder of a company or a beneficiary of a trust, the exemption will only apply if the benefit is provided to you in your capacity as an employee or director of the entity. Additionally, you must demonstrate that you play an active role in the management of the entity.

How do the tax rules apply to home charging units?

According to the ATO, the FBT exemption for electric cars does not extend to charging stations. This implies that an employer-provided charging unit to an employee could potentially trigger FBT. In cases where an employee buys a home charging unit, they may be able to claim depreciation deductions for the cost of the unit over several income years, provided it is utilized to charge a vehicle used for income-producing purposes. However, if the employee uses the vehicle solely for personal use, the cost of the charging unit would be deemed a private expense and hence, non-deductible.

What about the cost of electricity?

A friend of ours travels a lot for work and used to rack up large travel expenses throughout the year. A common story and something that we feel many of our readers relate to. He continued with these travel expenses, right up until he switched to an electric vehicle. Now it costs them only 3 cents per km in electricity.

Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km for running costs for EVs provided to an employee (from 1 April 2022 for FBT and 1 July 2022 for income tax).

If you use this rate, you cannot also claim any of the costs associated with costs incurred at commercial charging stations. It is one or the other, not both.

You also have the option of using actual electricity costs if you can calculate them accurately.