We’ve seen a rapid expansion of the use of electric vehicles over the last few years, driven by consumer behaviours, a focus on climate change and sustainability measures, along with governments worldwide implementing incentives to encourage sustainable transportation.
One of the current governments pre-election policy announcements was to provide an exemption from ‘fringe benefits tax’ (FBT) for certain electric cars. This was confirmed in December 2022 and led to the ATO providing guidance in relation to this complex area of tax law over the last 12 months. We have outlined below the basics of the FBT exemption, including changes to be introduced on 1 April 2025:
Current Rules – FBT Exemption for Electric Vehicles
Below is a summary of the key requirements to access the exemption:
- The vehicle must fall within the definition of a ‘car’ for FBT purposes — that is, motorcycles, e-bikes and vehicles designed to carry a load of greater than one tonne are ineligible.
- The car must be a battery electric, hydrogen fuel cell or plug-in hybrid car.
- The car must have been first ‘held and used for the first time’ on or after 1 July 2022
- The first retail sale of the car is below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022–23, or $89,332 for 2023-24)
What are the advantages?
The major advantage for businesses is the ability to acquire an electric vehicle and claim 100% of the running costs (as well as depreciation and interest on finance) through the business without the requirement to maintain a logbook calculating and justifying a vehicle’s business use %, or adjusting the vehicle’s claim through the business via an alternate method. This will almost always result in tax savings for the business.
What is changing on 1 April 2025?
From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.
However, you can continue to apply the exemption if both the following requirements are met:
- Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
- You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.
As with many areas of tax legislation, the rules around FBT and electric vehicles does have some complexity in the detail. Please reach out to your client relationship manager if you would like to discuss how the rules can work for you and your business.