Electric Vehicle FBT Exemption Explained

Electric Vehicle FBT Exemption Explained

Does it seem like everywhere you look, you’re suddenly seeing electric vehicles? Teslas, BYDs, Hyundais, Kias, the list goes on, everywhere?

Well, it is no surprise that electric vehicle sales in Australia more than doubled in 2023 compared with 2022 according to the Federal Chamber of Automotive Industries. In fact, EV sales made up 7.2% of all new car sales last year, and one of the factors contributing to this growth is the EV FBT Exemption.

The electric vehicle FBT exemption is (relatively) new legislation that came into effect 1 July 2022 and has made the purchase of electric vehicles (EVs) more affordable than ever before.

This article provides a summary overview of what the electric vehicle FBT exemption is, why it was implemented, and what it means for employees who are eligible to purchase an EV on a novated lease.

What is FBT?

 

FBT stands for Fringe Benefits Tax. FBT is a tax levied at a company (or employer) where a non-salary benefit is provided to an employee. Non-salary benefits aren’t subject to personal income tax, but are subject to FBT.

Novated leases are an example of a non-salary benefit to which FBT may apply. For over 30 years however, employers have avoided incurring FBT by structuring employee novated leases through a combination or pre- and post-tax salary deductions, thereby eliminating any liability. This is called the Statutory Method.

The resulting income tax savings (and hence overall value) of a novated lease have delivered millions of dollars of value to hundreds of thousands of employees.

 

What is the electric vehicle FBT exemption?

 

Ask anyone who has had a novated lease in the last 3 decades if they think it was the cheapest way for them to own and run a car, and 95% won’t hesitate in saying “yes”.

But things just got seriously more attractive for employees looking to lease a zero or low emission vehicle.

There is zero FBT on eligible vehicles.

  

What does zero FBT mean, and how do employees benefit?

 

So how do you quantify the impact the FBT Exemption has?

As you can see in the example below, the impact is significant. In fact, it is possible to lease an electric vehicle that is $28,000 more expensive than a petrol vehicle, for roughly the same cost per week.

 

Electric Vehicle FBT Exemption Explained

 

 

Why was it implemented?

 

Australia has enshrined in law its targets of reducing greenhouse gas emission by 43% from 2005 level by 2030 and net zero by 2050.

There are many initiatives that will contribute to this. Adoption of electric vehicles is but one element of a much broader plan, albeit an important one, and currently Australia significantly lags the rest of the developed world in this field.

In 2022 the Federal Government legislated the EV FBT exemption, and in April 2023 also implemented a National Electric Vehicle Strategy to help accelerate the transition away from combustion engine vehicles. The strategy sets out 3 key objectives:

–        Increase the supply of affordable and accessible EVs

–        Establish the resources, systems and infrastructure to enable rapid EV uptake

–        Encourage increased EV demand

 

These initiatives are both good for the planet and good for consumers’ back pockets. And judging by the phenomenal increase in EV sales last year and the growing number we see on the road each day, the initiatives appear to be working.

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