The ancillary tax exemption on select EVs has many benefits for EV buyers, but there are rules you must follow.
The Fringe Benefits Tax (FBT) exemption announced last year for employers who provide electric vehicles for employees was welcome news for many buyers considering an electric car, but as with all government programs, the devil is in the details .
At the highest level, this exemption is only available to employees where the employer offers the opportunity to earn reduced wages through a novated lease program.
Whilst this is common for employees of large Australian or multinational companies, many small businesses may need to consult a financial or tax advisor to assess whether it is both possible and affordable to offer to employees.
As always, this information is general in nature and does not constitute financial advice. Please speak to your employer or a tax professional to determine if a novated lease is right for you.
What is the ancillary service tax?
According to the Australian Taxation Office, a benefit is a “payment” made to an employee, but in a different form than salary or wages.
Ancillary benefit tax is a tax on this benefit that is levied by employers but often passed on to employees who lease their car through a novated lease for work.
In relation to vehicles, the ancillary service tax is a tax of 47 percent Part for personal use a work truck.
How is FBT calculated for a car?
The “own use” portion of your company car can be calculated in two ways – either using a logbook or using the “statutory method”.
The statutory method assumes a flat rate of 20 percent for private use of a work vehicle.
“The method required by law is usually that [calculation] People use because they don’t need to keep a log of business and personal usage, and so on [is based on the starting point of] 20 percent on the cost of the car, regardless of the distance traveled,” said Mark Chapman, director of tax communications at H&R Block, previously drive.
This self-consumption percentage is then multiplied by what is known as the “gross rate”, which is rounded up to account for any additional taxes to be withheld from the payment.
A tax rate of 47 percent for fringe benefits is then applied to the resulting amount.
For example, 20 percent of the value of a $75,000 work truck is $15,000. This is then multiplied by a gross rate of 2.0802, which is $31,203 – 47 percent of $31,203 is $14,665, which would be the FBT amount.
Using the same method, at the other end of the electric car spectrum, the driver of a $45,000 work truck would receive an FBT bill of $8799.
In the middle of those two price points, the driver of a $55,000 car could end up with a $10,754 FBT bill.
Although zero-emission and low-emission cars are exempt from FBT, the amount of FBT is your car would have The costs incurred still need to be calculated to determine the amount of your reportable benefits, a number that can affect other aspects of your taxable income.
What does the FBT exemption mean for electric car buyers?
“Starting July 1, 2022, employers will not pay FBT for eligible electric cars and associated car costs,” the ATO said.
That means if you qualify for all the rules and are able to buy a car like a Tesla Model 3 ($65,500 before road costs) through a novated lease, you don’t have to cover the cost of any FBTs that apply.
In addition, associated costs such as registration, insurance, repairs, maintenance, and fuel or electricity costs for charging are also exempt from the FBT when provided for an eligible EV.
This provides employees with a financial incentive to purchase EVs under a novated lease and reduces the FBT bill for EVs operated by fleets and company car drivers by thousands of dollars.
However, private buyers who pay for an electric car out of their own pocket would not benefit from the regulation.
Which electric cars qualify for the FBT exemption?
The car you buy must be a zero-emission or low-emission vehicle, meaning it must use an all-electric, hydrogen fuel cell, or plug-in hybrid powertrain. In addition, it has to be designed for a load of less than one ton, so the new LDV eT60 ute would not be suitable.
Cars must also be below the luxury car tax (LCT) threshold for fuel-efficient vehicles, which is $84,916 (including GST) for fiscal year 2022-23.
Note that the regulation only applies to PHEV vehicles (plug-in hybrid) until March 31, 2025, which means that PHEV vehicles will no longer be considered low-emission vehicles from April 1, 2025.
However, if you purchase a PHEV car prior to that date and your novated lease extends beyond April 1, 2025, you are still eligible to take advantage of the FBT exemption until your contractual lease expires.
The prerequisite for participation is the first use of an electric car on or after July 1, 2022 – also before this date.
This means that the car cannot be made available to employees until July 1, regardless of when it was purchased. If an employee used it on June 30, 2022 or earlier, they do not qualify.
This timestamp is based on when the car was First used, i.e. when you buy a used car, even if it is used your When the car is “used” for the first time, it is already considered “used” by the ATO and is not eligible for the FBT discount.
“An electric car is considered ‘used’ when it is used by, or available for use by, a company or person,” explains the ATO.
Bottom line, you need to buy a brand new car.
Here is a short list of the current models that fall under the FBT exemption criteria:
- Mitsubishi Outlander Aspire PHEV – $61,990 before road expenses
- Kia EV6 Air – $72,590 before road costs
- Tesla Model 3 Long Range – $80,000 before road costs
- Polestar 2 Standard Range Single Motor – $63,900 before road costs
- BYD Atto 3 default area – $48,011 before road charges
The post Electric Cars and the Fringe Benefits Tax Exemption: Everything You Need to Know appeared first on Drive.
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