What is it?
The Government has recently introduced a new amendment Bill to Parliament allowing you to save significant cost when purchasing your next electric vehicle.
The Bill exempts from Fringe Benefits Tax cars that are zero or low emission vehicles made available by employers to current employees.
How does it apply?
The FBT exemption relates to a car fringe benefit. Therefore, it only applies to vehicles that are ‘cars’ for FBT purposes. The amendment applies where the vehicle satisfies specific requirements:
- The car is zero or low emissions vehicle including:
- Battery electric vehicles;
- Hydrogen fuel cell electric vehicles; and
- Plug-in hybrid electric vehicles.
- The car must use one or more electric motors for propulsion;
- The car must be fuelled by either an off-vehicle electrical power source, a battery, an electric generator, a hydrogen fuel cell, or a combination of these;
- The value of the car at the first retail sale was below the luxury car tax threshold for fuel efficient vehicles ($84,916 in 2022-23); and
- The car is first made available for use on or after 1 July 2022.
The vehicle may be made available to the employee through a novated lease arrangement and still be eligible for this concession.
Although the vehicle will be exempt from FBT, the value of the benefit will still be a reportable fringe benefit for an employee. This can affect the income declared by the employee for the purposes of other government concessions and obligations.
Further, the legislation is proposed to be reviewed after three years. Where the exemption is subsequently removed after this time, the car may become subject to FBT in future years.
Along with this amendment the Notice of Intention to Propose Customs Tariff Alterations (No 6) 2022 reduces the rates of customs duty for electric vehicles from 5% to “free”.
What will you potentially save from this law change?
Let’s assume you currently run your business through a discretionary trust (you are an employee of the trust) and your before tax net income is $200,000 and you make after-tax earnings of $135,000.
Currently, the price of a Tesla Model 3 starts at about $60,000 including GST. Assuming you just use the vehicle for private purposes, if you buy the car personally out of after-tax earnings it will leave you with net after-tax earnings available of $75,000.
Alternatively, if you acquire the car through the trust, the trust should be entitled to claim an input tax credit for GST on the car and an immediate deduction for the cost of the car under temporary full expensing rules. This will result in the taxable income being reduced to $145,000 and tax down to $42,000. This will leave you with after tax earnings of $103,000.
Therefore, where you buy the car in the trust, the net cost of the $60,000 vehicle reduces by $28,000 to $32,000.
The legislation is currently before parliament. Therefore, we can’t guarantee it will be passed in its current form. However, where you are planning to acquire a new vehicle (including where not used for work purposes), we recommend you consider whether the cost of the car will be less where you purchase it through your business as an employee.