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How Does Tax Apply to Electric Cars?

April 1st marked the beginning of the financial year for Fringe Benefits Tax, commonly known as FBT. The latest update from the ATO is focused on exemptions and tax rules specifically for vehicles that are powered electronically.

Electric Vehicles and the Fringe Benefits Tax exemption.

Does your workplace supply an employee vehicle which is considered to be a zero emissions car? As of the 1st July 2022, An FBT exemption would apply, even if the vehicle is part of the salary sacrifice agreement with an employee.

These are the conditions in which the FBT exemption would apply:

  • If the car was valued below $84,916 at the time of purchase (this is the threshold for the luxury car tax) then the FBT exemption will be applicable.
  • From the 1st of July 2022 the vehicle was in use and in possession of the employee. This means that even if the car was purchased before the 1st of July 2022 the exemption could still apply, if the vehicle was not given to an employee yet.

Other elements that are considered in this exemption are:

  • Insurance
  • Registration
  • Maintenance and repairs
  • Fuel (electricity that is used for charging the vehicle falls under this category)

Please keep in mind that the stations used to charge the vehicle are not included in the exemption.

This particular Fringe Benefits Tax exemption is directed at employers, but also takes into consideration the fringe benefits of the employee receiving the electric car as well.

The amount of the benefit will be recorded on the employee’s income statement. As an employee you are not required to pay income tax on fringe benefits, although the ATO does take it into consideration when looking at other sections of your tax return, such as the employee share scheme reduction, private health insurance rebate, Medicare levy surcharge, and some social security benefits.

Does everyone benefit from this Fringe Benefits Tax Exemption?

 The straightforward answer is that it is only available for those who are employers supplying an electric vehicle car to an employee. This means it is not available if you are a partner or a sole trader.

However, it is possible to receive the benefit as a trust beneficiary or shareholder – only if you can prove that you are also an active employee of the entity

What are the rules regarding charging stations for electric vehicles at home?

There are specific rules around at-home chargers for electric vehicles provided by an employer. The ATO states that they are not part of this particular FBT exemption, and they could potentially trigger the FBT if an employee has received a charger form their employer.

It is different if the employee themselves purchases the charger for their home. This way they could potentially claim depreciation deductions based on the price of the charger, spread out over several years – as long as it is mainly used for charging a vehicle directly related to creating income at their job.

The rules change when the charging unit is only for personal use. This would simply mean that the price of the at-home charger is personal expense and will not be tax deductible at all.

How do you calculate the cost of electricity?

It’s no secret that the cost of running an electric vehicle is incomparable to a fuel run vehicle. You could end up paying as little as 3 cents per km in electricity to run your electric car.

The ATO is aware of how tricky it can be to differentiate between personal electricity use and that used for work. Because of this they have provided a solution to easily calculate the costs:

4.20 cents per kilometre

This is the rate applying to fringe benefits tax year or income year commencing on and after 1st April 2022.

Please be aware that this calculation does not apply if the vehicle is charged at commercial chargers as well as a personal charging station. You are only allowed to claim deductions on one charging method.

If you prefer to calculate the actual cost of the electricity used instead of the above method, you are allowed to, if it is accurately calculated.

If you need more help with this kind of information, contact us!

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