ATO Practical Compliance Guideline: FBT exemption for E Vehicle

The Australian Taxation Office (ATO) has recently issued PCG 2023/D1, a revised practical compliance guideline for exemption from paying Fringe Benefits Tax (FBT) on eligible electric cars.

Starting from July 1, 2022, employers in Australia will be exempt from paying Fringe Benefits Tax (FBT) on eligible electric cars and associated car expenses, but only if certain conditions are met.

Firstly, the car must be classified as a zero or low-emissions vehicle, which includes battery electric vehicles, hydrogen fuel cell electric vehicles, or plug-in hybrid electric vehicles. However, it’s important to note that starting from April 1, 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles under FBT law, unless they were exempt before that date and there is a binding commitment to continue providing private use of the vehicle.

Furthermore, the FBT exemption only applies to vehicles that are classified as “cars” for FBT purposes, which means they must be designed to carry a load of less than one tonne and accommodate fewer than 9 passengers. Other types of electric vehicles, such as electric motorcycles and scooters, will not qualify for this exemption.

Another condition for the FBT exemption is that the car must be held and used for the first time on or after July 1, 2022. The car can be owned or leased prior to this date, but it must not be used until after July 1, 2022. The term “held” in this context refers to ownership, leasing, or availability by another entity.

Additionally, the car must be used by a current employee or their associates, including family members, to be eligible for the FBT exemption. It’s also important to note that no luxury car tax should have been payable on the supply or importation of the car. This means that the value of the car at the first retail sale must be below the luxury car tax threshold for fuel-efficient vehicles, which is $84,916 for the 2022-23 financial year.

If all these conditions are met, the FBT exemption will also cover associated car expenses for the vehicle, such as registration, insurance, repairs or maintenance, and fuel costs, which include the cost of electricity to charge and run the vehicle. The Australian Taxation Office (ATO) is currently working on a draft practical compliance guideline (Draft PCG) that will provide a methodology for determining the approximate cost of electricity when charging a zero or low-emissions vehicle at an employee’s or an individual’s home.

It’s worth mentioning that a home charging station is not considered a car expense associated with providing a car fringe benefit for electric cars. However, depending on how an employer sets up a charging station for their employee, it may be considered a property fringe benefit or an expense payment fringe benefit.

Exempt Electric Cars: Understanding Reportable Fringe Benefits

Starting from 1st July 2022, employers are no longer required to pay Fringe Benefits Tax (FBT) on eligible electric cars and associated car expenses, given that certain conditions are met. However, it’s important to note that while the private use of these exempt electric cars is not subject to FBT, the value of the benefit must still be included when calculating whether an employee has a reportable fringe benefits amount (RFBA).

Employers need to determine the notional taxable value of the benefits associated with the private use of the exempt electric car. An employee will have an RFBA if the total taxable value of certain fringe benefits provided to them or their associate exceeds $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee’s payment summary.

There are some further considerations to keep in mind regarding the exemption for electric cars:

  1. Hybrid vehicles that are not plug-in hybrid electric vehicles are not covered by the exemption. Only battery electric vehicles, hydrogen fuel cell electric vehicles, and plug-in hybrid electric vehicles meet the criteria for zero or low-emissions vehicles.
  2. The cost of home charging equipment for electric vehicles and whether it can be capitalized into a novated lease without affecting the nature of the lease is a relevant issue to consider.
  3. Registration and state or territory road user charges are also important factors to take into account. The Australian Taxation Office (ATO) has released a fact sheet on electric vehicles and fringe benefits tax that addresses these practical issues.
  4. Provided that the eligibility conditions mentioned above are met, the exemption also applies to second-hand electric cars. However, practical issues may arise in proving when the car was first used and whether the luxury car tax was paid, as vendors may not be obligated to provide such information.
  5. It’s also important to consider the impact of various state-based rebate programs on leases, as these programs may affect the overall tax implications of using electric cars for business purposes.

In conclusion, the exemption from FBT on eligible electric cars and associated car expenses is a significant development for employers and employees alike. However, it’s crucial to understand the reporting requirements and consider other relevant factors when taking advantage of this exemption. Consulting with a tax professional or referring to the ATO’s guidelines can provide further clarity and ensure compliance with the tax laws.

Small Business Parking Exemption: Understanding FBT Benefits

Small businesses can enjoy an exemption from Fringe Benefits Tax (FBT) on car parking benefits, given that certain conditions are met. This exemption applies if the parking is not provided in a commercial car park, if the business’s gross total income for the last income year ending before the start of the relevant FBT year was less than $10 million, or if the aggregated turnover was less than $50 million.

The FBT is a tax that employers may be required to pay on certain benefits provided to their employees, including car parking benefits. However, small businesses meeting the eligibility criteria mentioned above can be exempt from this tax, providing a significant benefit to their operations and bottom line.

One of the key conditions for the small business parking exemption is that the parking must not be provided in a commercial car park. A commercial car park is defined as a car park that is open to the public and charges a fee for parking, or a car park used by the public that is located within 1 kilometre of a commercial car park that charges a fee for parking. If the parking provided by the small business does not meet this definition, it can be eligible for the exemption.

Additionally, the small business must meet the income requirements for the last income year ending before the start of the relevant FBT year. If the gross total income of the business was less than $10 million, or the aggregated turnover was less than $50 million, the business can qualify for the exemption. It’s important to note that aggregated turnover includes the annual turnovers of the business and its connected entities, which can affect the eligibility for the exemption.

It’s crucial for small businesses to understand the requirements and conditions for the FBT small business parking exemption, as failing to comply with the tax laws can result in penalties and fines. Keeping accurate records and seeking professional advice from a tax expert can ensure that small businesses take advantage of this exemption properly and avoid any potential compliance issues.

In conclusion, the small business parking exemption provides a valuable benefit to eligible businesses by exempting them from paying FBT on car parking benefits. Meeting the conditions of not providing parking in a commercial car park and meeting the income requirements can result in significant tax savings for small businesses. It’s essential to understand the eligibility criteria and comply with the tax laws to fully utilize this exemption and reduce the tax burden on small business operations.