No FBT on electric cars may assist companies with an edge for attraction and retention

The Government has provided a good reason for companies to consider a return to salary packaging. Executives may want to package an electric vehicle (EV) that has zero tax.

Treasury Laws Amendment (Electric Car Discount) Bill 2022 was passed by Parliament on 28 November and now awaits Royal Assent, which is likely to be received before Christmas. Once enacted, the Fringe Benefits Tax Assessment Act 1986 (FBTAA) will exempt from FBT cars that are zero or low emissions vehicles provided by employers to their employees for their private use. Key points for the FBT exemption include:

  • the value of the car at the first retail sale must be below the luxury car tax threshold (currently $84,916)
  • eligible cars are:
    • battery electric vehicles;
    • hydrogen fuel cell electric vehicles; and
    • plug-in hybrid electric vehicles.
    • collectively referred to as zero or low emissions vehicles.
  • the vehicles need to be ‘cars’ for FBT purposes; other types of electric vehicles are excluded.
  • The car is first held and used on or after 1 July 2022.

The government’s purpose in providing this FBT exemption is to increase the adoption of electric cars. This means, of course, that electric cars in use prior to 1 July 2022 will not be eligible for the exemption.

So, companies which do not provide salary packaging benefits given few advantages in the past may want to reconsider. Senior executives and the 3.6% of other employees in the top tax bracket (who pay 32% of all income tax) may want to think about sacrificing salary in return for the provision of an electric car owned or leased by the employer (novated leases being the most common for a variety of reasons).

While some employees may not want the electric car to tow the caravan, drive to the holiday house, or farm, it may appeal as the second car for the city runabout. In broad terms, an electric car costing $80,000 would ordinarily have an FBT cost of around $15,600 if available for private use for the whole year. That’s $15,600 (or other value) that the employee would not have to sacrifice and will receive as gross income. That could be enough appeal to attract and retain in a tight labour market.

Alternatively, if the company provides the car benefits to its employees on a ‘salary plus benefits’ basis, that is a cash saving for the company.

Like everything, there are pros and cons to the decision but it is fair to say this one comes with no strings attached except that electric cord.

The legislation and explanatory memorandum along with the second reading speech can be found HERE.

© Guerdon Associates 2024
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