New legislation has been enacted aimed at promoting the use of environmentally friendly transportation and meeting net zero carbon emissions by allowing employers to provide electric cars to their employees, including directors and arms-length employees, that can be used privately without attracting the usually associated fringe benefits tax (FBT) liability. This means that the cost of providing the electric car as a benefit to the employee would not be subject to FBT, making it a more cost-effective option for employers.
The cars can be owned by the business and provided for the private use of employees or they can be provided via a novated lease program. A novated lease is a type of car arrangement where the employer takes in the responsibilities and benefits of the lease and the employee receives the use of the car.
To be eligible for the FBT exemption, the ATO has prescribed that the electric car must meet all the following conditions
- the car is a zero or low emissions vehicle
- the first time the car is both held and usedis on or after 1 July 2022. Second hand cars can qualify but only if the first retail sale was on or after 1 July 2022.
- the car is used by a current employee or their associates (such as family members)
- luxury car tax(LCT) has never been payable on the importation or sale of the car. The LCT for the 23 financial year is $84,916, GST inclusive.
A zero or low emissions vehicle includes a battery electric vehicle; hydrogen fuel cell electric vehicle, or plug-in hybrid electric vehicle. However, it is important to note that the tax benefits are limited to certain types of electric vehicles and other electric motor cycles, 1 tonne vehicles or cars with more than 10 seats do not qualify for the exemption. Also the exemption for plug-in hybrid vehicles is only available for commitments made prior to 1 April 2025.
While the vehicles may be exempt from FBT, there are still recordkeeping requirements as a reportable fringe benefit still arises to the employee which must be reported through single touch payroll.
Whilst the new legislation is about promoting environmentally-sound practices and it may also assist employers in the recruitment and retention of employees who are interested in eco-friendly transportation and also a cost effective benefit that can now be provided to an employee under a salary packaging arrangement.
If you have any questions please contact your Johnsons MME advisor, email@example.com.
Assistant Manager, Business Services