On 27 July 2022, the Labor Government introduced a Bill (the 'Treasury Laws Amendment (Electric Car Discount) Bill 2022') to amend the Fringe Benefits Tax Assessment Act 1986 (Cth) to exempt from fringe benefits tax (FBT) cars that are zero or low emission (i.e. electric cars) provided to an employee for their private use. The exemption will extend to all car benefits provided to employees (including associated benefits in running the car), although further regard would need to be given to the practicalities around compliance and substantiation in claiming the exemption for running costs. Further, where the FBT exemption applies, State/Territory payroll tax should not be imposed on the provision of the benefit.
We expect there to be a significant uptake in employers offering salary sacrifice arrangements involving electric cars in order to attract and retain staff with enhanced remuneration packages (acknowledging both the supply chain challenges of acquiring an electric car, together with the currently limited range of electric cars that are below the luxury car tax threshold). Effective salary sacrifice arrangements involving FBT exempt electric cars could increase the after tax pay of employees or provide an "above the line" cost reduction for employers (depending on who would otherwise bear the FBT liability). Furthermore, the exemption may assist in employer's furthering their carbon reduction targets.
Although not introduced in the Bill, the Labor Government has also announced that it will introduce changes to remove the 5% import tariff for certain electric cars and develop Australia’s first national Electric Vehicle Strategy. There are also various State/Territory tax/duty concessions which already apply to certain electric cars.
$84,916 luxury car tax threshold
The exemption will only apply to cars in relation to which no luxury car tax is payable. This means that the retail price of the car (and the price of other related supplies which might attract luxury car tax) must be below the luxury car tax threshold for fuel efficient cars, which is currently $84,916 for the 2022-23 income year (and indexed annually).
1 July 2022 commencement date
The exemption will apply to electric cars that are first held and used on or after 1 July 2022. There is some ambiguity about the circumstances in which this requirement would be satisfied, however, the explanatory memorandum to the Bill notes the following:
- second-hand electric cars may qualify for the exemption only if the car was first purchased new on or after 1 July 2022; and
- the exemption could apply to electric cars ordered prior to 1 July 2022 but not delivered until after 1 July 2022 (even if the employer acquired legal title to the car prior to 1 July 2022).
Zero and low emissions vehicles
An electric car will need to meet specific criteria to attract the exemption. The car must be a battery electric vehicle; a hydrogen fuel cell electric vehicle; or a plug-in hybrid electric vehicle. There are definitions for each of these terms in the Bill. It appears that based on the definition of a plug-in hybrid electric vehicle that self-charging hybrid electric vehicles may not be eligible for the exemption.
Importantly, the exemption will not be available to electric motorbikes or other vehicles – the vehicle must be a car (being a vehicle designed to carry a load of less than 1 tonne and fewer than 9 people). Although, other forms of transportation may be FBT exempt on other bases.
Reporting exempt car fringe benefits
Exempt car fringe benefits for electric cars will still be included for the purposes of determining an employee's reportable fringe benefits amount. This means that the benefits will be included for the purposes of calculating an employee's Medicare levy surcharge, determining entitlement to certain tax offsets and determining eligibility for certain family assistance payments.
The impact on an employee's reportable fringe benefits amount should be considered when modelling the benefits of salary sacrifice arrangements taking advantage of the new FBT exemption.