The Australian government has recently passed an amendment to the Fringe Benefits Tax Assessment Act 1986. The amendment has seen an introduction of exemptions for zero and low emission cars. The aim of the exemptions is to increase the cost competitiveness of Electric Vehicles.
To be eligible for the fringe benefits tax (FBT) exemption the vehicle must meet several criteria.
- The car must be a zero or low emissions vehicles, which include
a. a battery electric vehicle; or
b. a hydrogen fuel cell electric vehicle; or
c. a plug-in hybrid electric vehicle (only until 2025)
d. full vehicle requirements can be found here
- The value of the car at the first retail sale must be below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23FY); and
- The car must be first held and used on or after 1 July 2022
As the amendment is to FBT, the eligibility is limited to vehicles that are ‘cars’ for the purpose of FBT. However, the exemption does extend to cars provided through a salary sacrificing arrangement.
The only interagency of the criteria is the final point which requires the car to be “first held or used on or after 1st July 2022”. This means that all cars that were purchased AND used before the cut off date will not be eligible for the exception; this extends to a car that is purchased second hand, for example:
“Michael acquires a car that is a low emission vehicle on 1 April 2022 and makes that car available for the private use of his employee Simon, to provide car fringe benefits from that date for 4 years, the benefits provided from 1 July 2022 will not be exempt.
In the above example, if another employer were to acquire the car post 1 July 2022 from Michael and commence providing that vehicle to an employee of theirs as a car fringe benefit at that later date, the exemption will not be available to that second employer.”
However, the exemption will apply for car purchased second hand that did originally meet the date criteria. Additionally, the exemption will apply for cars ordered before 1 July 2022, if the order is fulfilled/the car is first made available on or after 1 July 2022.
What does this mean for you?
In short it means that you can decrease your taxable income by being paid part of your wage/salary if the form of personal access to a business vehicle. Like most government incentives and exemptions, the practical implications and degree of savings is complex and varies depending on the individuals. The amount of tax savings will depend largely on your marginal tax rate, but the ATO did provide the following table to give examples of the potential savings across tax band.
Interestingly, the saving listed in this table do not include the reduction of the purchase price generated by claiming an input tax credit for the GST on the purchase ($5,454 GST credit for the Tesla Model 3 example) which is available even if the car is never used directly for business purposes. It should be noted though that the savings may vary depending on the length of the lease, interest rates, and other variable costs.
The Exemption can also be used in conjunction with other government rebates and concessions that are being offered by state governments to increase the adoption of low emissions vehicles.
Unfortunately, all FBT that is exempted under the new rules will still be counted towards employee’s reportable fringe benefit amount (RFBA). This is because the RFBA is used to calculate several other tax obligations.
If you have further questions on your circumstances, please feel free to reach out to our team today.