FBT exemptions for electric vehicles and other important updates
Fringe Benefits Tax exemptions for electric cars and other important updates
The Fringe Benefits Tax (FBT) year ended on 31 March and we’ve outlined the major changes that employers should be aware of surrounding:
· FBT exemption for electric cars
· Car parking changes
· Record Keeping
· FBT due dates
FBT exemption for electric cars
Electric cars still represent a small proportion of the new car market in Australia. With the aim of increasing their take up, the Government has passed legislation that provides a FBT exemption effective from 1 July 2022 for certain no or low emissions vehicles.
This means that providing your team members with the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars can now potentially qualify for a FBT exemption. This should normally be the case where:
The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $84,916 for 2022-23 financial year); and
The car is both first held and used on or after 1 July 2022.
When providing these exempt car benefits, it is important to be aware that your business would still need to work out the taxable value of the car benefit as if the FBT exemption didn’t apply. This is because the value of this exempt car benefit is still considered in the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments).
We note that there is the opportunity to reduce the reportable benefit if an employee uses their home electricity costs to charge their vehicle, as their home electricity costs could be considered an employee contribution. Because of the practical difficulties involved with working this out, the ATO has recently released a draft guideline providing a 4.20 cent per km rate that can potentially help. Just be aware that these guidelines do not apply to plug-in hybrid vehicles.
For Plug-in Hybrid EVs – the ATO has flagged that from 1 April 2025 onward, private use will no longer be eligible for exemption, unless both of the following apply:
Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025
You have a financial-binding commitment to continue providing private use of that vehicle on and after 1 April 2025
Illustrative Scenarios
Business provides motor vehicles to employees
Where you provide a car and any FBT liability is a cost of business, there is a financial incentive to switch to an exempt electric car to save on the FBT cost.
For example, if you provide a $50,000 petrol car to an employee, including funding all running costs, your business will incur an annual FBT liability of up to around $10,000. If you instead provide an exempt electric car, the business will not incur any FBT cost.
Employee Salary Sacrifice
If your employee chooses to enter into a salary-sacrifice arrangement to package a car, the exemption provides no direct financial incentive to the business.
Rather, it is the employee who receives the benefit of choosing an electric car. If FBT no longer needs to be factored into the salary sacrifice arrangement, the employee will have an increase in their take home pay.
Here’s an illustrative comparison of an employee’s $180,000 remuneration package that includes providing for a $50,000 car (figures are approximates).
*This scenario assumes that the GST exclusive annual car expenses including lease payments is $12,236. As the petrol car scenario requires FBT to be paid, a contribution by the employee is required to cover the FBT cost of up to $10,000.
In both cases, your business’s total remuneration cost is the same agreed package figure of $180,000 however the employee has an additional $4,454 of take-home pay when compared with the petrol vehicle.
As highlighted above, although electric vehicles are exempt from FBT, they are still Reportable Benefits to the employee and the reportable fringe benefit amount needs to be calculated and reported on the employee’s Payment Summary.
Car Parking Changes
Businesses generally don't have to pay FBT for providing an employee with car parking, if:
the employee has a disability;
you meet the small business exemption criteria; or
you are an exempt employer (charities, public educational institutions etc).
Small Businesses are exempt from paying FBT on car parking benefits if they meet all of the following conditions:
The parking is not provided in a commercial car park.
For the last income year (e.g., ended 30 June 2022) before the relevant
FBT year (e.g. ended 31 March 2023):
gross total income was less than $10 million; or
aggregated turnover was less than $50 million.
A ruling from the ATO has expanded the scope of car parking benefits as the ATO’s view on what constitutes a commercial parking station has changed. It can now include parking stations that charge penalty rates for all-day parking to the public, such as:
Shopping centres;
Hospitals;
Hotels;
Airports; and
Sport’s stadiums.
If you provide car parking facilities to team members in those types of facilities or the business turnover is above the thresholds, it is important that you understand the implications of FBT on the car park facilities you provide.
Contact the team at FMA to discuss this complex area in further detail.
Record Keeping
It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time.
Just a reminder, if your business has cars, it is important that employers obtain a record of their employee’s motor vehicle odometer readings at the first and last days of the FBT year (1 April 2022 and 31 March 2023).
Common other declarations you may need to keep on file include:
Logbooks for each motor vehicle using the operating cost method to calculate FBT;
Expense payment declarations to substantiate the ‘otherwise deductible’ rule;
Loan fringe benefit declarations;
Travel diaries or no private use declarations for travel over continuous periods of 5 nights or more; or
Living Away from Home Allowance declarations.
We note that draft legislation has been proposed to amend record keeping requirements to allow employers to rely on alternative records, such as existing corporate records that are adequate to finalise their fringe benefits tax (FBT) returns. We will keep you up to date with these proposed changes.
FBT Return Due Date
The due date for FBT Returns lodged through FMA Partners as a tax agent have been permanently changed to the 25th of June when lodged electronically. Payment of any FBT liability has also been aligned to be due of the 25th of June. As the due date falls on a Sunday for the 2023 FBT Returns, the due date will be 26th of June 2023.
The FMA team will be contacting businesses shortly to assist with the preparation and fulfilment of FBT obligations for the 2023 FBT year.