An employee’s private use of an electric car provided by an employer may soon be exempt from FBT if newly introduced legislation passes Parliament.
During the 2022 election campaign, Labor announced its Electric Car Discount policy in order to make electric cars cheaper and increase uptake. As a part of the policy, Labor proposed to exempt electric cars from import tariffs (currently at 5%) as well as fringe benefits tax (FBT) for those cars that are provided through work for private use.
It has now sought, at least partly, to make that policy a reality by introducing legislation to exempt from FBT the use, or availability for use of cars that are zero or low emissions vehicles made available by employers to current employees subject to certain conditions.
Under the current law, where a car that is owned or leased (ie “held”) by an employer is provided to an employee for private use, a car fringe benefit arises. The car is taken to be available for private use by an employee on any day that: the car is actually used for private purposes by the employee; or the car is available for private use by the employee
A car that is garaged at an employee’s home is treated as being available for the private use of the employee regardless of whether they have permission to use it for private purposes.
Similarly, where the place of employment and residence are one and the same, the car is taken to be available for the private use of the employee. However, when the Bill is passed and receives Assent, this will no longer be the case for any car that is a zero or low emissions vehicle, in that a car fringe benefit will no longer arise where an employer provides a car to an employee for private use in some cases.
For the purposes of the Bill, zero or low emission vehicles include battery electric vehicles, hydrogen fuel cell electric vehicles, and plug-in hybrid electric vehicles.
To qualify for the exemption, the zero or low emission vehicle’s first retail price on or after 1 July 2022 will need to be below the relevant year’s luxury car tax threshold for fuel-efficient cars.
For the 2022-23 financial year, the luxury car tax threshold for fuel-efficient cars is $84,916. The qualifying car will also need to be first held and used on or after 1 July 2022. According to the government, the purpose of the policy is to increase the takeup of electric cars, and therefore, electric cars in use prior to 1 July 2022 will not be eligible.
There are two tests for the exemption to apply, and both have to be met after 1 July 2022: the qualifying vehicle was held by the employer after that date; and the qualifying vehicle was taken to be available for use after that date.
Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022 but not delivered until after 1 July 2022 would be eligible for the exemption, even if an employer acquired legal title to the car before 1 July 2022. This is because the car would not be both held and used until after 1 July 2022.
In addition, a second-hand electric car may qualify for the exemption provided that the car was first purchased new on or after 1 July 2022.
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