The fringe benefits tax (FBT) exemption on eligible electric vehicles has numerous benefits for electric car buyers but there are some rules that they need to follow. When it comes to FBT exemption on electric vehicles, you might have a few questions and we are here to answer all your questions. Continue reading this blog to get answers to your questions.
What does the fringe benefits tax exemption mean for electric car buyers?
According to the ATO, from 1 July 2022, employers are not required to pay FBT on eligible electric vehicles and related car expenses. It simply means that if you are eligible for all rules and can buy an electric car through a novated lease, you don’t need to cover the expenses or cost of any FBT incurred.
Frequently Asked Questions Regarding FBT Exemption on EVs
Do we file a nil FBT return for an EV? Is it reportable? And what about depreciation and GST on the purchase of a vehicle?
Now, the question is about the FBT exemption on EVs. If a company buys an electric vehicle and allows its employees to use it, assuming there are no other fringe benefits, do we file a nil FBT return and then keep a record of a percentage of the reportable amount on the worker’s payslip each pay period? Is the vehicle purchase deductible and is the GST on purchase to be added in the next activity statement?
Answer: For instance, during the relevant time period, if the employer hasn’t paid any FBT instalments and doesn’t have an FBT liability, then they are not required to file an FBT return. On the other hand, if they want, then they could file an FBT return.
The grossed-up value must be recorded on the employee payment summary, which by this point should typically be handled via STP, even if the car is exempt under the FBT electric car exemption. This is based on the assumption that the taxable value of reportable fringe benefits—including the electric vehicle—provided to a specific employee during an FBT year is greater than $2,000.
Additionally, if the FBT exemption for electric vehicles was not available or had not been applied, then the rules need you to calculate the grossed-up value.
The company can claim a depreciation deduction on the vehicle if it buys a car and gives the vehicle to its employee and they work in the company. It might be considered whether the simplified depreciation rules under Division 328 could be available to offer a deduction on the vehicle purchase if the client is a small business entity and has chosen to make use of the simplified depreciation rules.
Otherwise, the temporary full expensing rules in Division 40 on the depreciating assets purchase (including cars) should be available where:
- the entity runs a business under general principles
- the entity’s total annual turnover is less than $5bn
- the asset should be held at or after 7.30 pm ACT time on October 6, 2020, and prior to 30 June 2023
- the entity has to use the asset or install it for use for a taxable purpose in the existing year and on or prior to 30 June 2023, and
- the asset is situated and used in Australia for the principal purpose of running a business
For second-hand assets, there are some restrictions, but if the client has a total turnover of less than $50m, then it should not apply.
The company can claim the GST credits on the vehicle purchase if the company buys a car and gives it to an employee who works in the company’s business. It should be liable to the GST car limit (if it applies).
Does the motor vehicle cost limit apply to electric cars for depreciation and GST purposes?
Answer: The luxury car depreciation limit and GST car limit should apply if the vehicle is a car and can carry fewer than 9 passengers (rather than goods). In simple words, it can be said that there is no particular exemption from the luxury car depreciation limit or GST car limit because the vehicle has an electric engine.
To get eligible for FBT exemption for electric vehicles, you need to follow rules. You can get detailed information regarding whether you are eligible for this or not by reaching Reliable Melbourne Accountants.