Current state of Electric Vehicles in Australia
Electric Vehicles (EV) are an inevitable part of our future. Many countries have already put in place bans on purchases of Internal Combustion Engine (ICE) cars at a future date.
We love our cars in Australia and Electric Vehicles in Australia are growing significantly in popularity and are becoming a more common sight on our roads. Besides the obvious benefits of reduced environmental impact the EV can also have significantly lower operating costs. Combine this with the Australian Government introduction of an FBT exemption on electric vehicles and all of sudden things are looking very attractive indeed for the future of EVs.
So what's this FBT exemption for electric vehicles about and how is it relevant to me?
In its simplest terms the FBT exemption means that if your employer provides you with an electric vehicle, you won’t be charged FBT on its use. The government’s move not only incentivises the adoption of EVs but also offers financial benefits to employees and employers alike. As an IT contractor working thru a payroll company offering Novated Leasing, why should you be interested in this FBT exemption?
Well apart from the inherent advantages of driving an electric vehicle, the FBT exemption can lead to significant tax savings for you. It’s an opportunity to combine potentially huge financial benefits with eco-friendly choices in your professional life.
We are going to break down why now might be a great time to consider making the switch to an electric vehicle.
Before diving into the nitty-gritty of FBT and electric vehicles, let’s first define what Fringe Benefits Tax (FBT) is. FBT is a tax employers pay on certain benefits they provide to their employees, including those benefits extended to an employee’s family or other associates. These benefits could range from allowing employees to use a company car for private purposes to providing them with discounted loans or gym memberships. Bookssorted doesn’t really offer gym memberships, but you get the idea.
FBT rates for conventional cars and electric vehicles
Typically, the FBT rates for conventional cars are based on the vehicle’s value and the distance driven for private purposes. The higher the private use, the higher the FBT rate. However, things are different when it comes to electric vehicles. The Australian Government has decided to exempt fully electric vehicles from FBT altogether. This exemption aims to encourage more people to choose electric vehicles and promote sustainable transportation options.
Eligibility criteria for FBT exemption on electric vehicles
To be eligible for the FBT exemption, the electric vehicle must meet specific criteria. First and foremost, the vehicle should be fully electric, meaning it’s not a hybrid or plug-in hybrid. It’s essential to note that the exemption applies only to new vehicles purchased on or after 1 July 2022.
Furthermore, the exemption is limited to vehicles where the Luxury Car Tax (LCT) has never been payable on the vehicle. This LCT cap ensures that the tax benefits are directed toward promoting affordable electric vehicles, making them accessible to a broader range of employees.
In summary, if you’re driving a fully electric vehicle provided by your employer, never exposed to the LCT and it was acquired on or after 1 July 2022, you’ll be eligible for the FBT exemption. There are exemptions for hybrid vehicles with different rules surrounding those but as of 1 April 2025 plugin hybrid vehicles will not be considered a “zero or low emissions vehicle”
This tax break is an excellent incentive for both employees and employers to consider electric vehicles as a more sustainable and financially attractive option.
Salary packaging opportunities with electric vehicles
The FBT exemption for electric vehicles opens up new salary packaging opportunities for IT contractors. Salary packaging, also known as salary sacrifice, allows you to allocate a portion of your pre-tax income toward the cost of an electric vehicle provided by your payroll company.
This arrangement can result in substantial tax savings and make owning an electric vehicle more affordable. By opting for salary packaging, you can enjoy the benefits of driving an electric vehicle while lowering your taxable income.
As an IT contractor, the FBT exemption on electric vehicles translates to tax savings. Since the FBT is not applied to eligible electric vehicles, you can save money that would have otherwise been paid as tax.
Lower operating costs
Finally, driving an electric vehicle can result in lower operating costs. Electric vehicles are generally cheaper to run than their internal combustion engine counterparts, as they have lower fuel costs and require less maintenance.
In conclusion, the FBT exemption for electric vehicles offers numerous benefits to IT contractors. From salary packaging opportunities and tax savings to lower operating costs and a reduced environmental impact, there’s never been a better time for IT contractors to consider making the switch to an electric vehicle.
The future of electric vehicles and FBT policy in Australia will be heavily influenced by the growth and development of the charging infrastructure. As charging stations become more widespread and accessible, electric vehicles will become a more practical choice for company cars. This growth in charging infrastructure may lead to further government incentives and policy changes, making electric vehicles even more attractive to IT contractors and employers. As a result, we can expect that the FBT exemption will continue to play a crucial role in promoting electric vehicle adoption.
Government incentives, such as the FBT exemption, play a significant role in promoting the adoption of electric vehicles among IT contractors. These incentives help make electric vehicles more financially appealing and demonstrate the government’s commitment to supporting eco-friendly transportation options. As the Australian Government continues to prioritise environmental sustainability, it is likely that additional incentives and support programs will be introduced to further encourage the adoption of electric vehicles and other green transportation options.
The future of electric vehicles and FBT policy in Australia looks promising. With the potential expansion of FBT exemptions, growth in charging infrastructure, and continued government support, IT contractors can expect even more opportunities and benefits when choosing environmentally friendly company cars.
Questions?
What is Fringe Benefits Tax (FBT)?
FBT is a tax employers pay on certain non-monetary benefits they provide to their employees, including the employee’s family or other associates. Examples of such benefits include company cars used for private purposes, discounted loans, or gym memberships.
How does the FBT exemption for electric vehicles work?
The FBT exemption applies to fully electric vehicles, meaning they are not subject to FBT. To qualify for the exemption, the vehicle must be fully electric, have a purchase price below $75,000 (excluding GST), and be acquired on or after April 1, 2021.
Can I salary package an electric vehicle to take advantage of the FBT exemption?
Yes, as an IT contractor, you can allocate a portion of your pre-tax income toward the cost of an electric vehicle provided by your employer. This arrangement, known as salary packaging or salary sacrifice, can result in substantial tax savings and make owning an electric vehicle more affordable.
Will the FBT exemption apply to hybrid or plug-in hybrid vehicles?
From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law and as a result no longer FBT exempt. However there may be excemptions. Call us if you want to discuss further
How does the FBT exemption for electric vehicles benefit employers?
The FBT exemption offers potential cost savings for businesses that provide electric company cars to their employees. In addition, it encourages environmentally friendly business practices and can lead to increased employee satisfaction due to the benefits of driving an electric vehicle.
What is the future of electric vehicles and FBT policy in Australia?
The future looks promising, with the potential expansion of FBT exemptions, growth in charging infrastructure, and continued government support. As a result, IT contractors can expect even more opportunities and benefits when choosing environmentally friendly company cars.