Electric cars below $84,916 in value to be FBT exempt from 1 July 2022.

Overview

The Federal Government has released draft legislation (Treasury Laws Amendment (Electric Car Discount) Bill 2022) to follow through on their election commitment to allow certain electric cars to be FBT exempt.

Very broadly, currently if a business acquires a car and that car can be used for private purposes/is parked at private residences, the employer will be subject to FBT which can be quite a significant tax cost.

Therefore, this draft release presents a new key tax planning consideration for employers (and employees) to save tax and also potentially for employers to increase their attractiveness as an employer.

Key insights

The key insights that can be taken away are as follows:

  1. The exemption will be available for eligible electric cars with a retail price below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022 23) first made available for use on or after 1 July 2022.
  2. If a model valued at about $50,000 is provided by an employer through this arrangement, the estimated FBT exemption would save the employer up to $9,000 a year per car.
  3. For individuals/employees using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4,700 a year. A salary sacrifice arrangement involves the individual employee reducing their gross income to pay for the car, which therefore effectively reduces their personal tax bill.
  4. If eligible, businesses may choose to claim a full tax deduction for the electric cars up to $64,741 for the 2022-23 year under the “temporary full expensing provisions.” At this stage, the temporary full expensing provisions ends 30 June 2023.
Final comments

Whilst the legislation is not yet passed as law, it is an opportune time for employers to consider whether they will update their internal policies and processes to allow salary sacrificing for electric cars to be a more attractive employer and/or change the priority to acquire electric cars for their business to save on FBT.