With effect from 1 July 2022, employers don’t need to pay FBT on electric cars (if they are eligible for this) and associated car costs. However, you need to meet the rules. According to the legislative authority, if the price of electric vehicles falls under $84,916, then those electric vehicles are exempt from fringe benefits tax (FBT).
Eligibility for FBT Exemption on Electric Vehicles
You don’t need to pay fringe benefits tax (FBT) if you provide private use of an electric vehicle that meets all the conditions mentioned below:
The exemption applies to low or zero-emission vehicles worth below the luxury car tax threshold for fuel-efficient cars (that is currently $84,916).
It includes hydrogen fuel cell vehicles, battery electric vehicles, and plug-in hybrid electric vehicles (PHEV).
From 1 July 2022, the exemption is applied for vehicles delivered to or first used by an individual from this date.
Luxury car tax has never been payable on the sale of the car.
Can the new FBT exemption be used if an employee purchases an electric vehicle and agrees to pay for the running costs through salary sacrifice?
For the FBT electric car exemption to apply, various conditions need to be met. One of these conditions is that the benefit must be a car fringe benefit. It doesn’t seem like the FBT electric car exception may apply if the employee essentially purchases the electric vehicle in their own name.
If the employee’s income is sacrificed in this scenario, the expense of operating the car should result in a separate fringe benefit. If the employer reimburses the vehicle’s cost, it is likely to be considered an expense payment fringe benefit (which wouldn’t be eligible for the FBT electric car exemption).
It would be a different case if the employer buys the vehicle and gives it to an employee. Additionally, the case could be different if an employee, employer, and financing firm engage in a novated lease in a relationship that is essentially arm’s length. In those cases, the FBT electric car exemption could apply.
How should employee contributions for EVs that are not subject to FBT be handled?
It should be required that you calculate the grossed-up value in the case where the car is FBT exempt under the electric car exemption, just as if the FBT exemption for electric vehicles hadn’t applied or wasn’t available (either under the statutory or operating cost method). This is needed to calculate the taxable value of the reportable fringe benefits amount of the employee.
Moreover, to reduce the reportable fringe benefit, it must be easy for the director to make post-tax employee contributions, but employee contribution needs to be assessable to the company. In simple words, the person is essentially giving something in exchange for using the company’s car.
A cash transfer may be used to make an employee contribution. Additionally, employee contributions may be provided through a set-off arrangement, but this needs that both the employee and the director agree to set off the employee contribution against a debt that the firm owes to them.
According to the ATO in MT 2050, the company/employer must be obligated to pay money to the employee. It could be a current liability, such as dividends or wages. Alternatively, the parties might decide that the employer or business will lend the employee some money. It needs to consider the Division 7A implications of such a loan if the company lends the person more money.
To know whether your electric vehicle is exempt from FBT or not, you need to meet the rules announced by the government. For further information, you can also get in touch with Reliable Melbourne Accountants.