Fringe Benefit Taxes are generally paid by employers on certain benefits they provide to their employees, employees’ families or other associations that is not their salary or wages. These benefits are subject to Fringe Benefit Tax, which is different from normal income tax.
Examples of fringe benefits include:
- Leased vehicle for personal use
- Personal use of a company car
- Discounted loans
- Private health insurance
Some benefits are exempt from fringe benefit tax (FBT) and from 1 July 2022 eligible electric cars and associated car expenses are included in this FBT exemption. This is a change made by the Federal Government recently to encourage the uptake of electric cars as an effort to make a positive environmental impact.
What this means for employers:
This FBT exemption could be saving money if you opt to provide an Electric Vehicle in comparison to a normal petrol-based car. For example, for a $50,000 vehicle you could be saving up to $9,000 with the exemption.
You can salary package the car to your employees, but you must ensure the agreement is documented prior to your employees receiving the income they are sacrificing for it to be effective for tax purposes.
What this means for employees:
If your employer provides you with an electric vehicle, your taxable income could be reduced. This car is eligible for a salary sacrifice for tax purposes assuming your employer agrees. According to Government modelling, an electric vehicle priced at $50,000 provided to you by your employer could save you up to $4,750 per year.
For a salary sacrifice to be effective for tax purposes, you must have the agreement documented prior to you earning the income you are sacrificing.
Please Note: Although there is no FBT placed on this item, the value of the electric car is still taken into account when determining your reportable fringe benefits amount. Therefore, even though there is no income tax paid on that amount, the benefit received will be reported on your income statement to determine items such as the medicare levy surcharge and private health insurance rebate.
What cars are included in the FBT exemption?
The requirements of the car must be as follows:
- The car is low and zero emission: including battery electric vehicles, hydrogen fuel cell electric vehicles and plug-in hybrid electric vehicles (FBT exemptions for plug-in’s end 31 March 2025)
- The car is designed to carry a load less than one tonne and fewer than nine passengers.
- The car was first held and used on or after 1 July 2022
- The value of the car is less than $84,916 (in 2022-2023)
For full eligibility requirements, please read here.
How do I know if I can access the FBT exemption?
This is dependent on your business structure. The exemption will only apply when an employer provides a car to an employee.
- If you are an employee of a business – you may be able to access the FBT exemption if your employer allows it.
- If you are a Partner of a Partnership or a Sole Trader – you are not eligible.
- If you are a Beneficiary of a Trust or Shareholder of a Company – you will need to be considered an employee of the entity (not a Director) to receive the car with an FBT exemption.
If you were considering purchasing an Electric Vehicle or would like to know more about the finance options available as well as novate lease options, we recommend reaching out to the helpful team at SME Finance who specialise in motor vehicle financing on 1300 275 763. Please click here to see the process SME Finance would take you through.