More organisations are exploring the provision of electric vehicles (EVs) for their employees. As with any employment benefit, it’s crucial to be aware of Fringe Benefits Tax (FBT) implications associated with EVs.
Recently, AfMA, along with Director, and WA State Lead for Indirect Taxes at KPMG Andy Larmour, had discussed the implications of EV adoption not only for businesses but also for its drivers. Here are the key takeaways from the webinar:
FBT Exemption Criteria
The FBT exemption for EVs comes with a set of criteria that businesses must meet to qualify including:
- The vehicle is a zero or low-emissions car. This means the vehicle must be a battery electric vehicle (BEV), hydrogen fuel cell vehicle (HFCV), or a plug-in hybrid vehicle (PHEV).
- It was acquired after 1st July 2022
- It is used or available for private use by current employees or their associates; and
- Luxury car tax (LCT) is not payable on the supply or importation of the vehicle. As of 2024, the LCT threshold for fuel-efficient vehicles is $89,332.
A Shift for PHEVs from April 2025
Come 1st April 2025, PHEVs will no longer be considered zero or low emissions under FBT law. However, businesses can continue to enjoy the exemption if they meet specific requirements, including exempt usage before the cut-off date and maintaining a financially binding commitment for private use post 1st April 2025.
Second-Hand EVs
For businesses providing second-hand EVs, it becomes crucial to trace the vehicle’s LCT history. In the absence of a clear sale history, alternative sources such as internet searches, car reports, or independent valuations become essential tools for determining potential LCT liability.
Mid-2027 Review
The Government plans to review the electric vehicle FBT exemption by mid-2027, aligning with its commitment to assessing the uptake of electric vehicles. This review aims to shape future policies, reflecting the dynamic nature of the EV landscape.
Reportable Fringe Benefits Amounts Balancing Tax and Fairness
Despite the FBT exemption, businesses must calculate and report the value of the benefit for employees with reportable fringe benefit amounts (RFBA) exceeding $2,000 in an FBT year. RFBA affects various financial aspects, including Medicare Levy Surcharge, tax offsets, family assistance payments, and more.
Example:
- Electric car costing $85,000
- Notional fringe benefit: $17,000
- RFBA: $17,000 x 1.8868 = $32,075.60
Home Charging Costs
Charging electric vehicles at home poses challenges in determining accurate expenses. Factors such as varying electricity prices, PHEV complications, solar energy usage, home batteries, and bi-directional charging add complexity.
The Australian Taxation Office (ATO) provides practical guidance through Practical Compliance Guidelines (PCG) 2024/2, offering clarity on home charging rates and obligations. Under the PCG, businesses can use an assumed EV home charging rate (e.g., 4.2 cents/km) for calculation purposes, considering both commercial and home charging expenses. However, the PCG does not cover plug-in hybrids.
Employee-owned or leased EVs create an expense payment fringe benefit which is potentially exempt if calculated with the EV home charging rate. Furthermore, the reimbursement becomes assessable income for the employee though it is possibly tax-exempt.
For business travel up to 5,000 kilometres yearly, EV owners can claim a deduction at a standard rate of 85 cents/km, covering all ownership and running costs.
Beyond 5,000 km, a logbook and car expenses, including home charging, are required.
The PCG offers practical guidance for determining home charging expenses, providing a useful tool for businesses and employees.
Home Chargers and Installation Costs
Installing EV charging stations, whether on business premises or at an employee’s home, comes with its set of tax implications.
Charging stations that are set up in the workplace becomes a part of your business assets. When you provide electricity to your employees for charging their electric cars, seen as a work benefit, it counts as a car expense (like fuel) and is exempt from Fringe Benefits Tax (FBT).
Home charging can get a little complex. Charging costs count as a car expense but providing or reimbursing for the charging station isn’t. If you give your employee a station, it’s a property benefit, subject to FBT. Reimbursing for station purchase/installation is an expense benefit, and FBT is applicable.
If charging costs are part of a lease, it’s advisable to separate the station cost. This ensures FBT concessions are applied correctly to car-related benefits.
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