Following the passing of Climate Change Bills, the Australian Government has planned to reach “net zero emissions”. As part of this commitment, they are looking to encourage increased use of electric cars on the road and to reduce carbon emissions from transportation, culminating in a Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs). As many road users look to EVs as an alternative to fossil fuel-powered transport, employers providing car fringe benefits may be able to take advantage. What’s more, EV owners who use their car for work-related travel can claim deductions in their income tax return. Read on to see if there’s something you can benefit from, as a business owner or an individual.
Employers – EVs and FBT
Under current FBT guidelines, an employer may be providing a car fringe benefit if a car they own is made available or leased to an employee for their private use. “Private use” of the car is generally defined if it is garaged at or near an employee’s home, and used for travel to and from work. Current exemptions exist for taxis and commercial vehicles designed to carry less than one tonne. There are specific rules concerning private use of such vehicles, and FBT exemptions exist for other types of motor vehicles. You can read the full details here.
In a recent announcement, the Australian Government laid out its proposal to remove FBT on eligible electric cars first held and used from 1 July 2022. An FBT exemption will apply if the car is a ‘zero or low emission vehicle’ and not subject to luxury car tax (the luxury car threshold for fuel-efficient cars for the 2023 financial year is $84,916). The value of EV fringe benefits exempt from FBT will still be counted towards an employer’s reportable fringe benefits amount (RFBA), used for calculating the Medicare levy surcharge, tax offsets, as well as family assistance payments eligibility.
While this announcement and related measures are still subject to the passage of legislation, employers now have much greater incentive to adopt EVs when considering providing a car for their employees, or if they already do so.
If the relevant legislation does pass, it will apply to the electric car fringe benefits provided from 1 July 2022. It is important to note that EVs provided to employees for their use before 1 July 2022 will not qualify for the FBT exemption. As part of their announcement, the Government indicated their plan to review the exemption after three years, and will consider overall take-up of electric vehicles in their assessment.
Individuals – Motor Vehicle Tax Deductions for EVs
No changes have been announced to legislation concerning claiming tax deductions for motor vehicle expenses. The two methods of claiming such expenses are the cents-per-kilometre and logbook methods. Cents-per-kilometre remains the simplest method to calculate your motor vehicle expense deductions without substantiation. Using the logbook method, the operating cost of the car can be claimed as a deduction, to the extent of its business use, and a logbook must be maintained for at least 12 weeks. The legislation defines a car expense as “a loss or outgoing to do with a car, operating a car, and the decline in value of a car.” As such, expenses incurred as a result of operating an electric car, other than of a private or capital nature, can be claimed as car expenses to the extent of its business use.
How P+P Can Help
As business advisors and accountants, we know that many business owners can struggle to keep on top of all business and personal tax obligations, particularly in the face of changing rules and new Government incentives. When you partner with us, our team will ensure you are maximising your deductions and legally minimising your tax obligations, no matter whether you’re a business or individual client. We can also guide you through your FBT obligations, ensuring your business is compliant and making the most of exemptions and incentives where they exist.
Please don’t hesitate to reach out today on +61 2 9093 1311 or contact us to find out more.
