Electric cars are set to become much more affordable with the Government locking in the legislation for low and zero emissions cars to be exempt from FBT (Fringe Benefits Tax).
Electric Car Discount Bill
The Electric Car Discount Bill has been passed in Parliament and is now legislated. The Bill exempts certain Electric Vehicles from FBT (Fringe Benefits Tax) presenting significant income tax planning and cost savings opportunities. This discount is one of the first new initiatives from the Government with a goal to improve the electric vehicle uptake across the country, with budget allocated to implementing infrastructure across Australia. This will benefit business owners, employers and importantly, the environment.
In the past, FBT (Fringe Benefits Tax) disadvantaged electric and low emissions vehicles because it was calculated to the proportional cost of the vehicle. Generally, electric vehicles cost more than comparable petrol and diesel models and therefore FBT was a a big deal breaker when deciding whether to go electric/low emissions vs petrol/diesel.
Not anymore! Since the Electric Car Discount Bill, electric vehicles could now be a viable option for your business. To understand why, first you need to know a little bit about Fringe Benefits Tax. If you’re across FBT already, then jump straight ahead, otherwise keep reading for a quick rundown on FBT.
FBT (Fringe Benefits Tax) Refresher
What is FBT?
FBT is a tax that employers pay on top of an employees salary or wages. This tax is calculated based on the value of benefits your provide. If you are an employer providing a car to your employee then you will generally have to pay FBT on that vehicle.
How is FBT on a car calculated?
One of the methods calculating FBT is at a flat rate of 20% of the car’s base value and also takes into account the number of days per year the car is used for private use.
Okay great, now for the benefits.
Electric car discount bill benefits for employers and employees
For Businesses: Company Fleets
It is very common for many companies to provide their employees a car for work purposes. Usually, these vehicles are garaged at the employees home and as a result they are subject to FBT as they are considered financially beneficial in addition to wages. The Electric Vehicle Discount Bill will mean eligible electric vehicles will qualify for an FBT exemption. This makes for a significant saving for employers. The saving opportunities all depend on how often the car is used for work vs private use. To discuss the potential savings for your business, it is recommended to chat to your accountant, so please get in touch for specific details regarding your business.
For Employees: Novated lease / salary-sacrificed vehicles
A novated lease between an employer, employee and financing company is an agreement where a car is leased by an employer, but the employee can pay for it using pre-tax income. This reduces the amount of income tax paid each year. For either a novated lease or a salary sacrificing agreement for a vehicle to be viable, it all depends on whether the savings are greater than the FBT payable and any other fees incurred.
With the FBT exemption on an electric or low-emissions vehicle, salary sacrificing will be a great opportunity to save some money because no FBT will be payable, lowering the income tax.
With these savings, it could mean that an electric car could be a cheaper option to a comparable petrol or diesel model.
What is the benefit for households?
While there is currently no direct tax saving benefits to households who may not have the opportunity to purchase/lease an electric or low emissions car through their employer, the bill passed by the Australian Government should cause for a higher demand on electric and low emissions vehicles. This means more infrastructure will be in place to facilitate electric vehicles and prices should be driven down as more people are set to purchase.
Along with that, vehicles purchased under salary sacrificing agreements and or company fleets are often sold again after 3-4 years as businesses may upgrade. This means these electric vehicles could be sold as second-hand vehicles, pushing more of them into the market and helping accelerate the roll out of electric cars across the country.
Electric Car discount eligibility
- The vehicle is either battery electric or hybrid
- The vehicle is under $84,916
- The vehicle is new and not used before the 1st of July, 2022
Is it a good time to switch to electric cars for your business?
This really does depend on your business personally as there are many factors to take into consideration, however with high savings opportunities presented, it is definitely worth exploring to see if it could benefit you.