One way to maximise tax savings as the financial year draws to a close is by purchasing an electric vehicle (EV).
Passed by the Australian Parliament on 28 November 2022, the Electric Car Discount removes the Fringe Benefits Tax (FBT) on eligible electric vehicles provided by employers.
This is part of the Australian Government’s efforts to make EVs more accessible to the public and reduce carbon emissions. EVs only make up 3.39% of the new car sales market this year. By purchasing an EV, you may maximise your tax savings.
Since the bill is an amendment to the Fringe Benefits Tax Act of 1986, the exemption will apply to those electric car vehicles and the employee’s compensation. The exemption will also apply after these conditions are satisfied:
· The car is a zero or low-emissions vehicle.
· The car’s purchase price is below $84,916 for 2022-23, the luxury car tax threshold for fuel-efficient vehicles.
· The car is in possession and used on or after 1 July 2022.
A zero or a low-emission vehicle is defined in the proposed bill as a battery electric vehicle, hydrogen fuel cell vehicle, or a plug-in hybrid electric vehicle that has the following components:
· It uses an electric motor but only for propulsion
· Equipped with fuel cell but only for converting hydrogen to electricity
· Generates and backs-up energy from external sources (outside electricity)
· Has not been fitted with a fuel cell or an internal combustion engine
In addition to an FBT exemption, the bill removes the 5% customs duty on the electric, plug-in hybrid, and hydrogen fuel-cell vehicles, with a customs value of less than $84,916 for 2022-23, the luxury car tax threshold. Moreover, the tax benefits will apply retrospectively from 1 July 2022 to eligible electric cars that are first held and used on or after 1 July 2022
This presents considerable tax savings for employers planning to get their electric vehicles as a fringe benefit for their employees and those interested in purchasing a car through a salary-packaged arrangement. The current fringe benefit tax is at 47%. This means a $50,000 car in a 5-year financing arrangement provided to an employee as a fringe benefit has a yearly tax payment of approximately $4,700. An exempt EV can effectively save a tax of roughly $4,700 per annum.
It is now time for employers to consider updating their internal policies and processes on salary sacrifice arrangements to be more attractive employers. It would also be an opportunity to reconsider options for acquiring electric cars as a fringe benefit to take advantage of the tax incentives.
Managing the myriad of business taxes can be complicated. Connect with the right partners before making any decisions.
Our team’s industry experience and tax expertise will help you anticipate and navigate these changes, allowing you to plan for future opportunities and meet compliance responsibilities.