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December 8, 2022

FBT exemption on EV’s: What to watch out for?

There is a lot of excitement around the new EV FBT exemption that is about to become law. With the rising cost of living including fuel prices, this could provide significant savings to take a Novated Lease on an Electric Vehicle (EV) or to incorporate them into your business fleet, but there are some parts of the Bill which you need to be aware of. Awaiting royal assent to become law, the Act will be back dated to 1 July 2022 and will be applicable to electric vehicles (EVs) or plug-in hybrid electric vehicles (PHEVs) with a recommended retail price up to $84,916. It will also take another $2500 off the purchase price of applicable vehicles through the reduction in import tariffs.

The first issue is that the exemption for PHEVs will only be until 1 April 2025 (the end of the FBT year) and EV’s until 30 June 2025 so any PHEV or EV needs to be purchased before their respective cut-off dates but obviously after 1 July 2022. Thankfully, the recent amendment has now effectively allowed for a grandfathering provision, wherein any eligible vehicle leased or financed within in these dates will be exempt from FBT for the period of the initial finance; they will not be exempt past the finalisation of this initial contract (i.e. you can’t extend the lease or refinance the residual and expect to still be exempt from FBT).

As an example, if you had a lease for 3 years that started on 1 April 2024, it will be exempt from FBT upto the lease end date of 31, March 2027. However, the exemption will not apply after this date, even if the option is taken to extend the lease. The FBT exemption can also apply to second hand electric cars so long as they meet the legislative requirements. Certainly, this still gives substantial savings over those initial three years, with the Government projecting savings of $9000 per year for employers and $4700 per year for employees based on a $50k EV purchase, but does create a reporting issue for the fourth year and obviously a need to adjust post tax deductions (if done under a novated lease arrangement).

The second trap in the legislation is that, despite the vehicle being exempt from FBT, the fringe benefit is still reportable. This means that the value of the vehicle will appear as a fringe benefit on your group certificate. This won’t be an issue for everyone, but this could affect means tested government payments that you or one of your employees may receive from Centrelink, such as the child care subsidy. Not such a big issue for Novated Lease drivers (so long as the provider explains the implications) but it could cause issues with employees where their employer has decided to move to EV’s to take advantage of the FBT exemption. Suddenly their drivers have much higher reportable benefits on their group certificates than they may have had with previous fleet vehicles and this could cause some HR issues should any employees receive certain benefits.

Despite this, all Governments in Australia are clearly pushing for more sustainability in transportation and with the combination of FBT exemption, state based subsidies, reduction in import tariffs and emissions (of course) EV’s are now more compelling than ever. Hopefully stock will free up in time for as many people as possible to take advantage of the FBT exemption! Check out our Sustainability page for models available in Australia, including how we can help you offset the carbon from your current fleet vehicles here.

To learn how StreetFleet can help move your company fleet to electric or for you to novated lease an EV, speak to us on 1300 273 359 and read more about the FBT legislation on the ATO website.

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