31 Jul 2024

How employers and employees can benefit from the Electric Vehicles Fringe Benefits Tax exemption

Is one of your employees considering a Novated Lease on an electric vehicle (EV)? Or, as an employer, are you looking to supply your employees with electric company cars (tools-of-trade)? The good news is that EVs aren’t just good for the environment – when leased, there are significant financial benefits for both employees and employers!

The Federal Government has introduced a Treasury Laws Amendment, known as the Electric Car Discount Act 2002. Thanks to this change, certain zero or low-carbon emission cars are now FBT-exempt. This allows both employees and employers to maximise their tax savings and feel good knowing they are doing their part to reduce their carbon footprint at the same time.

We’ve published this guide to delve into what the EV FBT exemption is and how employees and employers benefit from it, how it works, which electric vehicles qualify for the exemption, and also answer some common questions about the EV FBT exemption.

Fringe Benefits Tax (FBT) explained

Having a basic grasp of FBT, how it’s calculated and what some of the key considerations are when it comes to vehicles will really help to maximise the benefits of leasing – whether that’s Novated Lease for personal vehicles or Operating Leases business tool-of-trade vehicles. 

What is FBT?

Firstly, let's start by outlining Fringe Benefits Tax. The official definition, according to the Australian Taxation Office (ATO) is "a tax paid by employers on certain benefits provided to their employees, or their employees’ family or other associates".

These benefits, known as "reportable fringe benefits", are taxed differently from income tax. FBT was introduced to make sure all forms of employee compensation are taxed – not just employee wages and salaries. For example, in addition to base salary, an employer might choose to compensate their employees for a job well done with benefits like: 

• allowing employees to drive a company car for personal use
• facilitating Novated Leasing by employees of personal cars 
• funding annual gym memberships for employees
• awarding a holiday, entertainment, or rewards instead of sales commissions 
• paying for employee car parking 

If the benefit value is above $300 (not considered a minor benefit), then the employer is required to pay FBT on these benefits, even if the benefit is provided by a third party (such as by a gym for a membership or, a Novated Lease via a leasing company like FleetPartners).

How is FBT calculated? 

FBT is calculated based on the taxable value of the fringe benefit provided and the calculation method varies depending on the type of benefit. The ATO has more details, but a summary is: 

Employers must self-assess the amount of fringe benefits tax (FBT) they pay and work out the amount using what's referred to as the 'gross-up' amount. That means the taxable value of the benefits provided is based on the gross salary the employee would have to earn, at the highest marginal tax rate (including Medicare levy), to buy the benefits themselves.

FBT considerations

FBT impacts both employers and employees. Employers must budget for this tax when they’re offering their employees fringe benefits. While the employer is responsible for paying the FBT, employers often consider the cost in the overall compensation package offered to an employee so, employees need to understand how it affects them as well. 

Understanding FBT means that both employers and employees can make informed decisions about the benefits they offer and receive, respectively.

The FBT exemption on Electric Vehicles

The FBT exemption on EVs is a government incentive that has been designed to encourage the adoption of EVs and reduce carbon emissions in Australia.

The FBT exemption means employers don’t have to pay FBT on certain electric cars and some of the associated running costs.

How does the FBT exemption with Electric Cars?

The FBT exemption removes the FBT liability for employers - whether that's on company cars (on an Operating Lease) or an employee's personal car (via a Novated Lease) - meaning both employers and employees benefit from tax savings.

What vehicles qualify for the EV FBT exemption?

A vehicle must meet specific criteria outlined in the Electric Car Discount Act to qualify for the FBT exemption. The criteria includes the type of vehicle, its price, and its carbon emissions.

• Cars must be zero or low-emissions vehicles – this includes battery-powered EVs, hydrogen fuel cell EVs, and plug-in hybrid vehicles (PHEVs). These vehicles don’t include hybrid vehicles that only use liquid petrol. 
  and
• Weight and passenger capacities - the vehicle must be designed to carry a load of less than 1 tonne and fewer than 9 passengers. While this capacity applies to electric motorcycles and scooters, they don’t qualify.
  and
• The first time the car is held and used is on or after 1 July 2022 – this includes cars leased to employees on Novated Leases.
  and
• Current employee - the car is used by a current employee or their associates (such as family members).
  and
• Luxury car tax has never been payable on the importation or sale of the car – Luxury car tax is a tax on cars that have a GST-inclusive value above the luxury car tax threshold.

We recommend getting in touch with the team at FleetPartners, consulting the latest guidelines from the ATO, or talking to your tax advisor to confirm whether you or your employee's electric cars are eligible for the exemption.

Other FBT-exempt vehicle-related expenses

Some car expenses on eligible EVs are also exempt from FBT. The types of items considered a car expense are:

The benefits to employers

In addition to the direct tax savings for employers, the FBT exemption increases the appeal of employers offering Novated Leasing as a benefit to their employees - it's an attractive proposition for employers. Novated Leasing can be added to an employee benefits program, helping to attract and retain talented employees without costing the employer anything to administer, and if the employee leases an FBT-exempt vehicle, there's also no FBT to pay - it's like giving employees a pay rise and not costing the company a cent!

And, employees will love Novated Leasing as it helps them to get into a brand new vehicle, save thousands in income tax and GST, as well as feel good about reducing their carbon footprint.

Frequently Asked Questions

What vehicles do not qualify for the EV FBT exemption?
Conventional petrol or diesel vehicles (also known as Internal Combustion Engine vehicles or 'ICE' vehicles) and hybrid vehicles that only use liquid petrol.

If you're considering Novated Leasing and are not sure if the vehicle you're looking to lease will be exempt, we'd encourage you to call FleetPartners on 1300 666 001.

Is there an end date for the EV FBT exemption?
Currently, there's no fixed end date to the FBT exemption except for PHEVs, which will cease on 1 April 2025. The Government has also said it will review the policy in 2027.

Are there any requirements for charging stations at home?
For both employers looking to lease electric vehicles as company cars, or employees looking to Novate a personal car, having a charging station installed at home is not mandatory to qualify for the exemption. The network of public charging infrastructure has increased dramatically in recent years, so in most capital cities across Australia, a public charging station is typically not far away.

However, depending on how the vehicle is being driven and how frequently it is being used, a home charging station could be more convenient and beneficial particularly if the vehicle is parked at home overnight.

FleetPartners has a team of electric vehicle and charging experts to help guide and advise on you on an appropriate charging strategy for your business.

However, depending on how the vehicle is being driven and how frequently it is being used, a home charging station could be more convenient and beneficial particularly if the vehicle is parked at home overnight.
FleetPartners has a team of electric vehicle and charging experts to help guide and advise on you on an appropriate charging strategy for your business.

Can plug-in hybrid electric vehicles qualify for FBT exemptions?
As long as the vehicle meets the qualifying criteria outlined above, the FBT exemption will apply. So, that means some plug-in hybrid electric vehicles (PHEVs) qualify.

However, the PHEV exemption only applies until 1 April 2025, after which time, plug-in hybrid electric vehicles will no longer qualify.

Final words

The fringe benefits tax exemption on electric vehicles is a great opportunity for both employers and employees to benefit from the shift to greener, more sustainable cars.

FleetPartners can help you better understand the ins and outs of the exemption and eligible vehicles. So, whether you looking to lease company cars (via an Operating Lease) or a car for private use (via an Novated Lease), we'll help you to make an informed decision to maximise your tax benefits – and make the planet a better place for everyone.

Want to learn more about how FleetPartners can help you maximise the financial benefits of the EV FBT exemption? Get in touch today on 1300 666 001 or via our contact us form at https://www.fleetpartners.com.au/contact-us.