It's important employers consider the potential Fringe Benefits Tax (FBT) consequences when providing a benefit to an employee. This consideration remains essential for employers providing Electric Vehicles (EVs) to an employee, despite recent legislation exempting employers from paying FBT on their private usage.
With the Treasury Laws Amendment (Electric Car Discount) Act 2022 receiving Royal Assent on 12 December 2022, EVs provided to employees for private use are now exempt from FBT. Given the potential savings available and the popularity of EVs, we expect many employers will receive requests for EV salary packaging arrangements and business owners may also consider their own arrangements. While purchasing a car predominantly for private use through a trading entity may not have been an attractive option in the past, this tax-saving opportunity will cause some to reassess.
So what does this mean for the employer? Here we summarise three key considerations to assist employers in understanding their responsibilities.
1. Does the car satisfy the FBT exemption criteria?
The employer is responsible for assessing whether the EV satisfies the following exemption criteria:
a) The EV must first have been held and used after 1 July 2022 and must satisfy the zero or low emissions vehicle conditions:
- A battery electric vehicle,
- A hydrogen fuel cell electric vehicle, or
- A plug-in hybrid electric vehicle. (from 1 April 2025, only available for financially-binding commitments that were previously exempt).
- And, is designed to carry a total load of less than one tonne and less than 9 passengers.
b) The EV must be used by a current employee or their associates, and it cannot be used by a past or future employee.
c) Luxury car tax must never have been payable on the supply or importation of the car . For the 2022-23 financial year, the luxury car tax threshold for fuel-efficient vehicles is $84,916 - any new EVs will need to be lower than this amount. However, if the car in question is second-hand, the employer must research prior sales to determine whether LCT was ever applicable. We see the requirements for second-hand EVs causing confusion and frustration for both employees and employers.
The exemption will only apply to lease arrangements if they are bona fide car leasing arrangements.
2. Are there any additional car expenses or associated items?
Employers will need to consider the treatment of any additional costs associated with the car including:
a) Car expenses
For employers providing a car benefit to employees, associated car expense benefits costs are exempt from FBT. Examples of these costs include registration and road user charges, insurance, repairs and maintenance, fuel and electricity.
b) EV batteries
EV batteries are expected to last longer than ordinary petrol-fuelled car batteries, but their cost can be high when they need replacing. If the replacement battery adds minor enhancement resulting from new technology, this is considered a repair and maintenance cost and, therefore, exempt from FBT. If the replacement is a substantial improvement to the car, for example, an upgrade or adding new features, it will be treated as a capital asset and added to the vehicle’s cost price.
c) Home charging stations
The ATO has clarified that it will not consider home charging stations an exempt car expense. Instead, they will be considered either a property fringe benefit or an expense payment fringe benefit. If providing an employee with a charging station for their home, the fringe benefit must be handled separately, and FBT will be applicable, even if packaged in the leasing arrangement. Charging stations provided on the business premises will be FBT exempt, as well as the electricity provided to charge the vehicle while on the premises.
The treatment will depend on whether it is a business or non-business accessory. If the fitted accessory is not required to meet the needs of the business, the cost will be added to the EV’s cost price. If the item is a business accessory, then there will be no impact on the cost price.
3. What is the reportable fringe benefit?
Even though there is no FBT payable on the EV, the employer is still required to calculate the taxable value of the benefit and report the employee’s Reportable Fringe Benefit Amount (RFBA). While the RFBA does not result in additional income tax, it is included in thresholds for some government benefits, child support assessments, HELP repayments and Division 293.
Employers can choose the statutory formula or the operating cost method when calculating this value and must follow each method’s record-keeping requirements. The taxable value is reduced by any contributions made by the employer and any running costs the employer has incurred personally, including the cost of electricity used to charge the EV at home. Given the difficulty of determining the specific cost of charging the EV at home, the ATO is set to release a Practical Compliance Guideline outlining a method for approximating this amount.
How we can help
Although the FBT exemption is an opportunity for employers to provide employees with tax-saving salary packaging arrangements, awareness of the additional compliance and administrative requirements is necessary. With the FBT year ending on 31 March, employers already providing electric vehicles to employees should act fast to ensure they satisfy these obligations. Mazars can assist employers in reviewing current and proposed arrangements and provide guidance on any FBT consequences.
For further information about the tax treatment of electric vehicles, please refer Mazars earlier article: https://www.mazars.com.au/Home/Insights/Latest-news/Are-electric-vehicles-really-tax-free
If you would like more information about the EV exemption and the FBT consequences, please contact your usual Mazars advisor or alternatively, one of our experts via the form below or on:
Author: Adrian Citton
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