The electric car is becoming a popular option for families and businesses alike. Here’s everything you need to know about the fees, taxes and charges (pun not totally intended) of purchasing an electric car for your business, so you can weigh up whether it’s the right option for you.
What is a Zero or Low Emissions Vehicle?
A Zero or Low Emissions Vehicle (ZLEV) has to satisfy both these conditions: it is a battery electric vehicle, hydrogen fuel cell electric vehicle, or plug-in hybrid electric vehicle AND it is a car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).
The Fringe Benefits Tax (FBT) exemption for electric vehicles (EV)
If you provide your employees with the use of a car that is classified as a ZLEV, there is a FBT exemption that can potentially apply to the you (the employer) from 1 July 2022, regardless of whether the benefit is provided in connection with a salary sacrifice arrangement or not.
Source: ATO
The FBT exemption should normally apply where:
- The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and
- The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn’t made available to employees until 1 July 2022 or later.
The exemption also includes associated benefits such as:
- Registration
- Insurance
- Repairs or maintenance, and
- Fuel, including electricity to charge and run the vehicle.
But, it does not include a charging station.
While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.
Who doesn’t the FBT exemption apply to?
By its nature, the FBT exemption only applies where you provide a car to an employee. Partners of a partnership and sole traders are not employees and cannot access the exemption personally.
If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity).
How do the tax rules apply to home charging units?
The ATO has confirmed that charging stations don’t fall within the scope of the FBT exemption for electric cars. This means that FBT could be triggered if an employer provides a charging unit to an employee.
If an employee purchases a home charging unit then it might be possible to claim depreciation deductions if the unit is used to charge a vehicle that is used for income producing purposes. However, if an employee is only using the vehicle for private purposes then the cost of the charging unit is a private expense and not deductible.
What about the cost of electricity?
Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km (see below) for running costs for EVs provided to an employee. This rate applies from 1 April 2022 for FBT and 1 July 2022 for income tax.
| Rate applying to fringe benefits tax year or income year commencing on and after | EV home charging rate |
| 1 April 2022 | 4.20 cents per km |
If you use this rate, you cannot also claim any of the costs associated with those incurred at commercial charging stations. It is one or the other, not both.
You can also have the option of using actual electricity costs if you can calculate them accurately.
Do ZLEV owners have to pay something similar to a fuel excise?
The short answer is yes, but it’s only a very small amount. There is a new ZLEV road-user charge that those with a Victorian registered ZLEV have to pay for using Victorian roads, but only a small portion of this amount will be for fuel excise as most electric vehicles run solely from electric sources.
Fuel excise is a tax levy applied to all petrol and diesel that you buy at the service station, to help pay for our roads.
Currently, the fuel excise for petrol and diesel using vehicles is charged at 42.3 cents/L, whereas ZLEV users only have to pay 2.6 cent/km.
Note: A hybrid electric car is not classified as ZLEV.
If you’re weighing up the pros and cons of going electric for your employee company cars, contact your Aintree Group advisor to discuss all your options before you lock it in. If you’re looking for an advisor with specialised FBT expertise, get in touch with us today to find out how we can help you.
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