Benefits of the new FBT changes on electric vehicles

As the use of electric vehicles grows in popularity, it's crucial for business owners to keep up-to-date on how the recent changes to Fringe Benefits Tax (FBT) regulations affect their operations and workers. By selecting the appropriate electric vehicle, comprehending the associated expenses, and guaranteeing that employees are educated and equipped, employers can benefit from this exciting innovation and gain a competitive advantage.

This article provides a comprehensive overview of electric vehicles and FBT, covering everything you need to know.

Benefits of Electric Vehicles for Businesses

Businesses can enjoy numerous benefits by choosing electric vehicles, irrespective of their size. The primary advantage of electric vehicles is their considerably lower running costs compared to conventional petrol or diesel vehicles. Furthermore, employers are now recognising the sustainability aspect of electric vehicles as they have a lower carbon footprint compared to their fossil-fuelled counterparts. By producing low or zero emissions, electric vehicles are also enabling businesses to meet their sustainability targets.

How the FBT Changes Incentivise Electric Vehicles

Under the new legislation introduced by the Government in 2022, certain zero and low-emission vehicles are exempt from FBT. The legislation incorporates a few hoops employers will need to jump through for the electric vehicle to qualify as exempt for FBT. They are summarized below:

1. The purchase price of the motor vehicle must be less than the current Luxury Car Tax (LCT) threshold of $84,916 for the 2023 FBT year (including GST)

2. The motor vehicle must first be held & made available for use after 1 July 2022

3. The motor vehicles must be a zero or low emissions vehicle, that is:

• A battery-operated vehicle
• Hydrogen cell fuel vehicle
• A plug-in hybrid electric vehicle

All the above options must be considered a car for FBT purposes (motorcycles, scooters and some utes do not qualify) in order for this exemption to apply.

The legislation also provides that expenses associated with exempt electric vehicles are not subject to FBT, including registration, insurance, servicing + repairs and fuel.

Traps to look out for

Seemingly, as with all Australian tax legislation, there are several issues to consider when making the decision to provide an electric vehicle to an employee. These include:

1. Second-hand vehicles – when determining if a vehicle qualifies under the purchase price limit, employers need to consider the purchase price for the first time the vehicle was sold in a retail sale (i.e. not the price you paid as the second-hand purchaser).

2. Changing purchase prices – it is worth noting the same vehicle may be exempt or not depending on when and where the vehicle is purchased based on prices offered by retailers.

3. Home charging stations are not included as an associated benefit of an exempt electric vehicle and may instead be an expense or property fringe benefit that is subject to FBT as normal.

4. Car parking fringe benefits for electric vehicles are still subject to FBT.

Reporting Obligations

Although FBT-exempt vehicles are not subject to Fringe Benefits Tax, they are still considered when calculating an employee's Reportable Fringe Benefits Amount. This amount is not included in the employee's assessable income, nor does it impact the employer's actual FBT liability. However, the Reportable Fringe Benefits Amount is used to determine whether an employee is eligible for certain tax and non-tax concessions and obligations.

Bringing Electric Vehicles into Your Business

If you're considering adding electric vehicles to your business fleet, there are several factors you need to take into account. Firstly, you'll need to carefully choose the right type of vehicle that suits your needs, including considering the size of your business, the length of employee trips, and the availability of charging infrastructure in your area. The cost of purchasing or leasing an electric vehicle is another factor to consider. While they may be more expensive upfront than traditional petrol or diesel vehicles, they may offer significant cost savings over time. Additionally, you'll need to factor in the ongoing costs of charging and maintaining your electric vehicle.

The recent changes to the FBT rules relating to electric vehicles offer exciting opportunities for businesses to adopt sustainable and cost-effective transportation alternatives. To take advantage of these changes and give your business a competitive edge, have a chat with LINK Advisors to gain maximum benefits from your potential electric vehicle purchase.