EV FBT Exemption: Everything Australian Employers Need to Know
Natasa Djalovic
Last update on:
August 9, 2024 10:10 AM
Published on:
With a staggering 120% rise in sales over the past year and more than 180,000 EVs now on the roads, the automotive landscape in Australia is rapidly changing.
One of the driving forces behind this shift is the government's fringe benefits tax (FBT) exemption for electric cars. This incentive, coupled with growing environmental awareness and lower vehicle operating costs, has made EVs an increasingly attractive option for employers.
Understanding the EV FBT exemption and its implications plays a role in deciding which company vehicles to purchase. Additionally, this incentive attracts and retains talent, and contributes to a more sustainable future.
Knowing how to effectively track and manage EV-related expenses, such as mileage reimbursement, will help your business comply with tax regulations and maximize cost savings.
This article will address the following topics:
The specifics of the EV FBT exemption, including eligibility criteria and associated benefits.
The implications of the FBT exemption on mileage reimbursement and salary sacrifice arrangements for electric cars.
How to calculate electricity costs for charging EVs under the latest ATO guidance.
The importance of mileage tracking tools like Timeero in ensuring accurate reporting and streamlining reimbursement processes.
By understanding the ins and outs of the EV FBT exemption, you’ll be equipped to make informed decisions about your company’s vehicle fleet and contribute to a greener Australia.
Ready to simplify mileage tracking?
Discover how Timeero can automate tracking and ensure accurate claims.
The EV FBT exemption is a strategic tax incentive introduced by the Australian government to accelerate the adoption of electric vehicles in the workplace. Introduced in July 2022, this exemption significantly lowers the cost of EVs, making them a more attractive alternative to traditional petrol or diesel vehicles.
This exemption offers companies a compelling financial advantage by eliminating the fringe benefits tax (FBT) typically applied to eligible electric cars and associated expenses provided to employees for both business and private use.
Why is the EV Fringe Benefits Tax Exemption Important for Employers?
Besides tax savings, EV FBT exemption brings companies some other benefits:
Cost Reduction. The FBT exemption significantly lowers the overall cost of providing car fringe benefits to employees, leading to substantial savings in FBT expenses.
Attracting and Retaining Talent. Offering EVs as a benefit can enhance a company’s appeal to potential employees and boost employee morale and loyalty.
Sustainability Goals. Embracing electric vehicles demonstrates a commitment to environmental responsibility and sustainability.
Reduced Operating Costs. Electric vehicles typically have lower fuel and maintenance costs than conventional cars, contributing to long-term operational cost savings for businesses.
Enhanced Brand Image. Promoting the use of electric vehicles can positively impact a company’s brand image and show its commitment to innovation and a greener future.
Eligibility Requirements for the EV FBT Exemption
So, what are the requirements for the electric vehicle fringe benefit tax (FBT) exemption in Australia?
Zero or Low Emissions. The vehicle must be a battery electric vehicle (BEV), a hydrogen fuel cell electric vehicle (FCEV), or a plug-in hybrid electric vehicle (PHEV).
Note: Hybrid vehicles fueled solely by liquid petrol and motorcycles/scooters (even if electric) are not eligible.
First Held and Used. The car must have been first held and used on or after July 1, 2022. This means that even if an EV was purchased before that date, it could still qualify if it was not used (made available to anyone) before that date.
Value Limit. The car’s GST-inclusive value, including any accessories sold with the vehicle, must not exceed the luxury car tax threshold for fuel-efficient vehicles, which is $91,387 for the 2024-25 financial year.
Luxury Car Tax. The car must not have ever incurred a luxury car tax (LCT).
Usage. The car must be used by a current employee or their associates (such as family members).
Car Expenses Exempt from FBT
If the car itself is eligible, the following additional expenses are also exempt from FBT:
Registration costs
Insurance
Maintenance and repairs
Fuel costs (electricity for charging)
FBT Law Change for Plug-in Hybrid Electric Vehicles (PHEVs)
PHEVs are currently eligible for the FBT exemption, alongside fully electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs).
However, starting April 1, 2025, the FBT exemption will no longer apply to PHEVs. Only fully electric vehicles (BEVs and FCEVs) will be eligible for the exemption after this date.
But, there are exceptions to these upcoming changes:
Existing Financially Binding Agreements. If a PHEV was purchased before April 1, 2025, under a financially binding agreement (like a lease) that extends beyond that date, the FBT exemption will continue to apply until the original agreement ends.
No Optional Extensions. The exemption won’t apply to any optional extensions of the agreement made after April 1, 2025. For example, if a lease ends on December 31, 2025, and is optionally extended for another year, the exemption will not apply during that extension period.
PRO TIP: To avoid unexpected tax bills, consider switching to fully electric vehicles or include the tax in your budget. It’s also important to let your employees know about this change, as it might affect their personal taxes.
Which Cars are Eligible for the Australian Government’s Electric Vehicle Discount?
Many vehicle brands and models are eligible for the exemption, including Tesla, BYD, Kia, Hyundai, MG, and Polestar. To ensure eligibility, it’s crucial to confirm that the purchase price, including GST and any accessories, is below the LCT threshold.
EV FBT Exemption and Mileage Reimbursement: ATO Guidance
The EV FBT exemption directly impacts mileage reimbursement for employees using company-provided EVs.
In February 2024, the Australian Taxation Office (ATO) released Practical Compliance Guideline (PCG) 2024/2, which provides simplified methods for calculating electricity costs for home charging, listed below.
Three Options for Calculating Electricity Costs
Standardized Rate. This simplified method uses an ATO rate of 4.2 cents per kilometer. This rate is effective from April 1, 2022, for FBT and July 1, 2022, for income tax. This is especially useful when the home charging station cannot separate EV charging costs from overall household electricity usage.
Actual Costs. This method requires the tracking and calculating of actual electricity expenses incurred for charging.
Combination Method. If it’s possible to determine the percentage of charge from different locations (e.g., home vs. commercial), a combination of the standardized rate and actual costs can be used.
Important Considerations
The standardized rate applies only to fully electric vehicles, not plug-in hybrids, motorcycles, or scooters.
The cost of installing a home charging unit is not exempt from FBT and may be considered a separate fringe benefit.
Interested in issuing car allowance instead of mileage reimbursement? Read our article to learn more about car allowance in Australia to determine if it’s the right fit for your business.
EV FBT Exemption and Salary Sacrifice for Electric Cars: A Win-Win for Employers and Employees
The EV FBT exemption is a game-changer for businesses and employees interested in electric vehicles. Eliminating the FBT on eligible vehicles makes salary sacrifice arrangements for EVs even more attractive.
What is Salary Sacrifice?
Salary sacrifice, also known as salary packaging, is an agreement where an employee forgoes a part of their pre-tax salary in exchange for a benefit, such as an electric car. This reduces the employee’s taxable income, leading to lower income tax and Medicare levy payments.
Several Australian companies specialize in salary sacrifice schemes for electric cars. These platforms offer a range of electric car options, competitive pricing, and comprehensive services, making the transition to electric vehicles easier and more financially viable.
Reportable Fringe Benefits and Record-Keeping
Even with the FBT exemption, the value of the car benefit must be included in the employee’s Reportable Fringe Benefits Amount (RFBA). This is essential for determining eligibility for benefits like the Medicare Levy Surcharge and family assistance payments.
Employers must maintain adequate records for five years, including odometer readings at the start and end of each FBT/income year and electricity bills (if using the actual cost method).
Tracking EV Usage and Expenses: The Importance of Mileage Tracking Tools
To make the most of the EV FBT exemption and provide accurate reimbursements, businesses should closely track how their electric vehicles are used as well as their operating costs.
Traditionally, employees have relied on manual logbooks to track mileage for work. This method often results in errors and tends to be time-consuming.
Modern mileage tracking apps like Timeero streamline the mileage tracking process, offering a comprehensive solution for employers and employees.
How to Track Mileage with Timeero for Australian EV FBT Compliance
Timeero simplifies mileage reimbursement and EV usage tracking for Australian businesses, ensuring compliance with FBT regulations and ATO guidelines.
Here's how Timeero’s mileage tracking process works:
Automated and Accurate Mileage Tracking
Timeero leverages GPS technology to automatically track mileage when employees are clocked in. The app records mileage with precision, eliminating manual logs and the risk of encountering errors or time fraud. The app even works offline, providing uninterrupted tracking in remote areas.
Customizable Mileage Rates
Timeero allows employers to easily set and customize mileage rates based on the ATO’s cents-per-kilometer method or other company policies. This flexibility ensures accurate reimbursement for EV charging costs and other eligible expenses.
Seamless Expense Tracking
Employees can easily track additional business expenses like tolls, parking, and maintenance by attaching receipts directly to their mileage logs.
Simplified Reporting
Timeero generates comprehensive reports tailored to Australian tax requirements, making it easy for employers to review and approve mileage claims and ensure FBT compliance.
Real-Time Visibility
Employers can track employee locations in real-time, encouraging accountability and enabling efficient route planning for EV drivers.
Route Replay and GPS Breadcrumbs
The app allows employers to review detailed travel routes with timestamps, increasing employee accountability and identifying opportunities for route optimization.
Segmented Tracking
For employees visiting multiple locations, Timeero breaks down the workday into segments, showing time and distance for each segment of the journey.
Integration with Payroll Software
Timeero seamlessly integrates with popular Australian payroll systems, automating the reimbursement process and minimizing manual data entry.
Read our comprehensive comparison article to find out how Timeero compares to some of the best mileage-tracking tools on the market.
Wrapping It Up
When it comes to promoting the adoption of electric vehicles in Australia, the EV FBT exemption is a powerful tool. Through cost savings, reduced tax burdens, and contributing to a more sustainable future, it benefits both employers and employees.
Employers should use tools like Timeero to manage EV usage and expenses efficiently, ensuring accurate reporting and maximizing the benefits of this significant tax incentive.
To learn more about other benefits Timeero brings to the table, read our detailed Timeero review.
FBT Electric Vehicle Exemption FAQ
Can I Salary Sacrifice an Electric Car?
Yes. You can enjoy substantial benefits if your employer offers a salary sacrifice scheme and the chosen electric vehicle meets the FBT exemption criteria. The salary sacrifice arrangement covers the lease or finance payments for the car, and since these deductions are made before tax, your taxable income decreases, resulting in tax savings.
Eliminate Mileage Guesswork. Get Precise Reimbursements, Effortlessly.
Natasa is a writer specializing in the IT and software industry with 6+ years of experience in content writing and online marketing. During that period, she wrote more than 1,000 articles and several ebooks. She majored in English language and literature and loves cats, sneakers, and candy. When she's not working, she's probably binge-watching Netflix.
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