Electric Vehicles and their Fringe Benefits’ Tax Exemption

The provision of a car fringe benefit to an existing employee will be the focus this tax season as new legislation changes that came into effect from 1 July 2022, will appear on payment summaries for 30 June 2023.

Generally, an employer that provides a car that is held for private purposes, is providing a car benefit and must pay fringe benefits tax (FBT). FBT is calculated and paid separately to any other tax such as income tax, company tax, or goods and services tax.

However, there are exemptions to FBT, and the definition criteria of a car should be considered first. The FBT Act (1986) defines a car as “a motor vehicle that is designed to carry a load of less than one tonne, and 8 or fewer passengers that excludes the driver”. The types of cars that qualify for an FBT exemption are battery electric vehicles, hydrogen fuel cell electric vehicles, and plug-in hybrid electric vehicles.

Additional measures that are necessary to meet the exemption also include:

• The car must be for a current employee and first held for use after 30 June 2022
• There must have been no luxury car tax paid on the vehicle when it was first purchased.
• Second hand vehicles can qualify if they meet the criteria of no luxury car tax at the time of their first purchase. Source documentation can include internet and valuation reports to determine if the annual luxury car tax limit was met, at the time of purchase. The luxury car tax for the 2023 financial year is $84,916

It is important to note that once the car has qualified for an exemption, the taxable value of the benefit must still be calculated and reported, even when it is nil. When valuing the fringe benefit the ATO have advised that either of the two available methods are acceptable. They are the statutory formula or the operating cost method.

Adequate records will need to be maintained that include all methods of substantiation for using the operating cost method as well as odometer readings and logbook records (12 weeks for every 5 years).

Update: there has been further updates on electric vehicles from 1st April 2025. From this date plug-in hybrid electric vehicles will no longer qualify unless there are certain agreements in place between the employer and the employee.

If you would like to obtain more information on this topic, please contact our office.