Electric Vehicle Incentives: Why You Should Make the Switch

The Federal Government has recently passed a bill that provides an FBT exemption for employers that opt for “environmentally friendly” (electric) vehicles for use by their employees.

The Treasury Laws Amendment (Electric Car Discount) Bill 2022 encourages business owners to purchase fleet vehicles that produce low or zero emissions. With the FBT for motor vehicles currently at a flat-rated tax of 47%, this is certainly advantageous for any business owner looking to replace or expand their fleet.

The Criteria

Your new fleet vehicle is exempt under the following criteria:

• The car is a low or zero emissions vehicle, this includes:
  *Battery Electric Vehicles;
  *Plug-In Hybrid Electric Vehicles; or
  *Hydrogen Fuel Cell Electric Vehicles.
• The car must utilise one or more electric motors for propulsion;
• The car must be fueled by a battery, an off-vehicle electrical power source, a hydrogen fuel cell, an electric generator, or a combination of these options.
• The car was made available for employee use after the 30th June 2022.
• The car’s value must be below the fuel-efficient vehicles’ luxury car tax threshold ($84,916 in the 2022/23 income year) at the first retail sale.

You should also consider:

• It is possible that this exemption will be removed in three years time after a mandated review; the car will then be subject to FBT.
• There is eligibility for Novated Lease Agreements.
• The value of the exempt vehicle benefit must be reported by the employer. This can affect your employee/s and their eligibility for certain benefits, concessions and offsets.
• If you’re based in South Australia, you may be eligible for additional State Government incentives. Find more on this here.

Customs Tariff Reduction 

In addition to the incentives listed above, the customs tariff rate for importing electric vehicles has been reduced to 0%, from its previous 5%. 

Let’s consider an example of the above to show how this scheme may work for your business.

Example

• Prosper Co Pty Ltd, is a SME in business trading out of a Company Structure.
• The company directors & Shareholders are Mr & Mrs Brown.
• The company makes taxable income of $300K for the year ending 30 June 2023.
• Mr & Mrs brown both have taxable income of $150K.
• Mr & Mrs Brown are going to purchase new a car for $64K including GST and are deciding between a  “zero or low-emissions vehicle” and a standard emissions vehicle.
• The car is primarily going to be used by Mr & Mrs Brown for private purposes.
• The Income tax & GST consequences on the purchase of both vehicles are the same for the company:
• A tax deduction can be claimed on the GST exclusive value of the car of $58,181. A tax saving of $14,545.
• GST credits on the purchase of both vehicles are approximately $5,818.
• If Mr & Mrs Brown decide to purchase the zero or low-emissions vehicle, there are no further tax adjustments required.
• However, if they proceed with the standard emissions vehicle, as it  will be used for private purposes by the directors it will be subject to FBT.
• To reduce the FBT to $0, a recipient's contribution is required, and given the vehicle use is predominantly private this would be under the Statutory formula rate of 20% of the cost base of the purchase price.
• On a $65K purchase this will be an annual recipient’s contribution of $13,000 including GST.
• This results in additional GST payable each year the car is owned of $1,182.  
• And additional income tax at the company level of $2,955.
• Given this recipient contribution will generally be funded by shareholder dividends, additional income tax (after adjusting for imputation credits) at the shareholders level will be $1,820.
• This means each year the standard emissions Vehicle is held and available for private use by the directors, there will be additional tax payable of $5,957.
• Assuming the car is held for 5 years this amount will total almost $30,000 in additional taxes payable over this period.

If you have any questions or would like some assistance in this process, please get in touch to discuss with our team of experts.