Fringe Benefits Tax Exemption – Electric Cars

On 29 June 2022, the Government announced a proposal to cut the tariffs and remove fringe benefits tax (FBT) on electric cars from 1 July 2022. This measure is not yet law. 

If enacted, this will apply to the FBT year that ends on 31 March 2023. 

The FBT-free Electric Vehicle (EV) scheme recently proposed by the Government is the first stepping stone in a plan to encourage zero and low emission as the car of choice for Australians into the future. A win-win for the environment and some businesses

Currently, EVs represent just under 2% of the new car market in Australia, with rapid growth plans in the pipeline. So far, the 62% jump in new EV registrations between 2020 and 2021 is an early indication of growing success. 

The Australia-wide EV growth plan is multi-faceted and includes converting the Commonwealth fleet to 75% no-emissions vehicles. It is on this point, fleet cars, that the FBT exemption on EVs is focussed.  

In Australia, business accounts for around 40% of light vehicle sales, however, EV sales to business fleets made up only 0.08% of the market (2020).  Whilst the Government has committed to converting its fleet to no-emission vehicles, for the private sector there is a deep discrepancy between the affordability of EVs compared to petrol vehicles.  

As EV vehicle ownership is less accessible and less affordable overall, the Government implemented a new exemption to the FBT system. In late June 2022, a proposal was announced to provide an exemption for fringe benefits tax (FBT) on electric cars from 1 July 2022. 

In a nutshell, the Bill offers salary packaging for the purchase of an electric vehicle under $84.916. This applies to car fringe benefits provided on or after 1 July 2022 for cars that are eligible zero or low emissions vehicles first used on or after 1 July 2022, and includes; 

  • Battery electric vehicles 
  • Hydrogen fuel cell electric vehicles 
  • Plug-in hybrid electric vehicles – If the car has an internal combustion engine, it will only qualify if it can be recharged by an off-vehicle power source 
  • Second-hand cars can qualify, but only if their first retail sale was on 1 July 2022 or later. So, if you purchased an electric vehicle before 30 June 2022 but you have not received it yet, you may be eligible for this exemption.

Your business structure makes a difference.  

Importantly though, the FBT exemption only relates to cars, so other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load of less than one tonne and fewer than nine passengers. 

In addition, the FBT exemption only applies when an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.

To benefit from this FBT exemption, your business structure matters. This is where Yield can work for you, advising you now and into the future.  

Based in the Barossa, we are a trusted local team. Led by experienced advisors Matt Whitelum, Amanda Westbrook and Brett Johnson, our team is committed to maximising your future financial health.