As the world is shifting towards sustainable and eco-friendly solutions, the use of electric vehicles is becoming more and more prevalent. To encourage the adoption of electric vehicles, the Australian Federal Government introduced legislation providing a fringe benefits tax (FBT) exemption for an employee’s private use of eligible electric vehicles from 1 July 2022.

What is fringe benefit tax?

FBT is a tax paid by employers on certain benefits provided to their employees, including the provision of a motor vehicle. The FBT payable is equal to 47% of the taxable value of the benefit provided, and is imposed to ensure that employees do not receive non-cash benefits that aren’t subject to income tax.

What are FBT exemptions for electric vehicles?

The Government’s objective of providing an FBT exemption for electric vehicles is to make them more affordable to the general public. In doing so, the Government believes the exemption will encourage a wider take up of electric cars and result in a reduction of Australia’s carbon emissions.

To be eligible for the FBT exemption, the benefit must have the following considerations:

1. The vehicle is a “zero or low emissions vehicle”, defined by legislation as:
   • a battery electric vehicle,
   • a hydrogen fuel cell electric vehicle, or
   • a plug-in hybrid electric vehicle *(eligible for an FBT exemption up until 1 April 2025).

2. Benefit is provided in respect of a current employee, or their associate.
3. The first time when a person both held and used the electric vehicle was on or after 1 July 2022.
4. The value of the electric vehicle falls below the luxury car threshold at the time it was first sold as a retail sale. The threshold for the 2023 income year is $84,916.

What are the benefits of FBT exemptions for electric vehicles?

The FBT exemption applies to the private use of the electric vehicle by the employee. This means that if an employee uses an electric car for personal purposes, such as commuting to work or running errands, the employer will not have to pay FBT on the benefit provided.

Furthermore, the FBT exemption for electric vehicles provides several benefits:

1. Employers can reduce their FBT liability by providing their employees with electric vehicles.
2. By providing employees with electric vehicles, employers are encouraging the use of sustainable transport options and reducing their carbon footprint.
3. Providing employees with electric vehicles as a benefit can be a valuable tool in attracting and retaining employees.
4. Switching to electric vehicles can help reduce traffic congestion and improve air quality in cities.

The FBT exemption for electric vehicles is a valuable tax incentive that encourages the use of eco-friendly transport options. By providing this benefit to employees, employers can reduce their FBT liability while also promoting sustainable practices and reducing their carbon footprint.

The government will complete a review into this exemption by mid-2027 to consider the take up of electric vehicles by the public.

If you have any questions relating to the FBT exemption on electric vehicles, review our FBT guide for 2023 and please get in touch with Christina Cooper, our FBT Manager on 03 5443 0344 or email fbt@afsbendigo.com.au.