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Electric Vehicles – Efficient for the Environment… and Your Tax Bill?

As the world begins to embrace electric vehicles as a suitable alternative to fossil fuel-powered transport, the Australian Government has planned to reach “net zero emissions” following the passing of Climate Change Bills. The Government’s objective in providing the FBT exemption for electric cars is to encourage increased use of electric cars on the road and to reduce carbon emissions from transportation. If you are an employer providing car fringe benefits or looking to claim a tax deduction as a result of using your EV for work-related trips, read on…

Electric Vehicles and Fringe Benefits Tax (FBT)

Under current FBT guidelines, an employer may be providing a car fringe benefit if a car they own is made available or leased to an employee for their private use. In this instance, the car is generally deemed available for private use if it is garaged at or near the employee’s home, and is used for travel to and from work. Current exemptions exist for taxis and commercial vehicles designed to carry less than one tonne, with rules around what is considered private use in relation to those vehicles. There are also other types of motor vehicles that are exempt from FBT – full details here.

The Australian Government recently announced its proposal to remove FBT on eligible electric cars that are first held and used from 1 July 2022. An electric car will be exempt from FBT if the car is a ‘zero or low emission vehicle’ and is not subject to luxury car tax. The luxury car threshold for fuel-efficient cars for the 2023 financial year is $84,916. The value of electric car fringe benefits that are exempt from FBT will still be counted towards an employer’s reportable fringe benefits amount (RFBA) for calculating Medicare levy surcharge, tax offsets and eligibility for family assistance payments.

While this is still subject to the passage of legislation, it does give employers greater incentive to adopt electric vehicles if they plan to provide a car for their employees or already engage in such activity.

If the relevant legislation does pass, it will apply to the electric car fringe benefits provided from 1 July 2022. Electric cars provided to employees for their use before 1 July 2022 will not qualify for the FBT exemption. The Government plans on reviewing the exemption after 3 years – depending in part on the overall take-up of electric vehicles.

Motor Vehicle Tax Deductions for Electric Vehicles

There are no changes to the legislation for claiming motor vehicle expenses. The 2 methods of claiming motor vehicle expenses are the Cents per kilometre method and the Logbook method. The cents-per-kilometre is the simplest method to calculate your motor vehicle expense deductions without substantiation. Under the logbook method, the operating cost of the car can be claimed as a deduction to the extent of its business use. You will also need to maintain a logbook for at least 12 weeks. The legislation defines car expense as “a loss or outgoing to do with a car, operating a car, and the decline in value of a car.” This means expenses incurred in operating an electric car, other than of a private or capital nature, can be claimed as car expenses to the extent of its business use.

How MP+ Can Help

It can be difficult to keep on top of all of your business and personal tax obligations, particularly when rules change and new Government incentives are announced. To ensure you’re maximising your deductions and legally minimising your tax obligations, the Tax team at McKinley Plowman are on hand to assist. We can guide you through your FBT obligations and ensure your business is compliant; and help maximise your personal motor vehicle deductions. Call us today on 08 9301 2200 or contact us for a no-obligation consultation.

written by:

Steven Lisle

Tax Manager Steven Lisle has been part of the McKinley Plowman team since 2007, and in that time has built his repertoire upon delivering industry leading, up-to-date international and Australian tax strategies and consulting services. Steve's clients enjoy the optimised tax outcomes he provides them, especially where complex structures could otherwise lead to significant tax obligations.