Do you own an electric car? Here’s what you need to know for tax deductions
Electric vehicles (EVs) are becoming more common in Australia and charging infrastructure is increasingly available.
EVs are an increasingly viable and convenient solution in cities, towns and major holiday destinations. There are a range of benefits to driving electric, including:
- Reduced fuel costs and higher efficiency
- Less maintenance
- Fuel security
- Reduced traffic noise
- Air quality improvements
- Good for the environment
Incentives for electric vehicles
To support the uptake of electric vehicles in South Australia, the government provided a $3,000 subsidy and a 3-year registration exemption on eligible new battery electric and hydrogen fuel cell vehicles first registered from 28 October 2021.
The subsidy for eligible new battery electric or hydrogen fuel cell vehicles ended from 1 January 2024.
Individuals and businesses that have entered into a binding contract for the purchase of an eligible electric or hydrogen fuel cell vehicle prior to 1 January 2024, and are awaiting delivery of the vehicle, will still be eligible to receive the subsidy regardless of whether the vehicle has been registered by that date. This will ensure that those who have ordered an eligible vehicle on the expectation of receiving the relief will not be disadvantaged.
There are no changes to the registration exemption for electric vehicles. A 3-year exemption will still be available to any eligible new electric vehicles valued below $68,750 and first registered between 28 October 2021 and 30 June 2025
Electric cars exemption
From 1 July 2022 employers need not pay FBT on eligible electric cars and associated car expenses.
You do not pay FBT if you provide private use of an electric car that meets all the following conditions:
- The car is a zero or low emissions vehicle (battery electric, hydrogen fuel cell, or plug-in hybrid electric vehicle)
- The first time the car is both held and used is on or after 1 July 2022
- The car is used by a current employee or their associates (such as family members)
- Luxury car tax (LCT) has never been payable on the importation or sale of the car.
Benefits provided under a salary packaging for a zero or low emissions vehicle
A vehicle is a zero or low-emissions vehicle if it satisfies both of these conditions:
It is a:
- Battery electric vehicle
- Hydrogen fuel cell electric vehicle, or
- Plug-in hybrid electric vehicle.
- It is a car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).
- Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.
From 1 April 2025 however, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.
The practical effect of this requirement is that the electric car must be used for the first time on or after 1 July 2022 – even if it is held before this date.
An electric car is ‘held’ when it is:
- owned (includes cars acquired under hire-purchase arrangements)
- leased (or let on hire), or
- otherwise made available by another entity.
An electric car is considered ‘used’ when it is used or available for use by any entity or person.
The following car expenses are exempt from FBT if they are provided for an eligible electric car:
- Registration
- Insurance
- Repairs or maintenance
- Fuel (including electricity to charge and run electric cars).
You may be able to reduce the FBT on any items that aren’t exempt car expenses, if the expenditure would have been deductible to the employee had they incurred it themselves. This is called the otherwise deductible rule.
Employee contributions – savings due to salary sacrifice arrangement
Where an employee enters into a novated lease arrangement, or otherwise agrees to financially contribute towards the provision of a car fringe benefit, some or all of the employee contribution will typically be made from after-tax salary. For electric cars that qualify for this exemption, the total contribution made by an employee may now be made from pre-tax amounts. This change is expected to provide significant tax savings for the employee due to reduced taxable income.
Charging the electric car at an employee’s home
A car expense is defined for FBT purposes to include fuel. The ATO has confirmed in its recent guidance that fuel which includes ‘electricity to charge and run electric cars’, constitutes a car expense. Employees who charge their cars at home may seek reimbursement or, alternatively, seek to salary sacrifice these costs. However, in the absence of a separate meter to measure the electricity consumption, an employee cannot calculate and record the electricity costs associated with charging their electric car.
In summary, this exemption encourages the adoption of electric cars by reducing the tax burden associated with providing them as employee benefits. Employers can now support sustainable transportation options without incurring additional FBT costs.
EV home charging rates
The ATO allows a cents-per-kilometre methodology for calculating electricity costs where an electric vehicle is charged at an employee’s or individual’s (e.g. sole trader’s) home.
The employer or individual can choose to use this methodology instead of determining the actual cost of the electricity. The choice is per vehicle and applies for the whole income or FBT year. However, it can be changed from year to year.
The methodology does not apply to plug-in hybrid vehicles, electric motorcycles or electric scooters.
Cents-per-kilometre
The ‘EV home charging rate’ is 4.2 cents per km. This rate is applied to the total number of kilometers traveled by the electric vehicle throughout the year.
If charging costs are also accrued at commercial charging stations, and you can accurately figure out the percentage of charging that happens at home versus at these stations, then the total kilometers traveled need to be adjusted accordingly. If you can’t accurately determine the home charging percentage, you have two options: either use the EV home charging rate and ignore the cost of charging at commercial stations, or use the commercial station charging cost and skip the EV home charging method.
Record keeping and transitional approach for 2022–23 and 2023–24
If you are an employer and you choose to apply the EV home charging rate for FBT purposes, a valid logbook must be maintained if the operating cost method is used.
To satisfy the record-keeping requirements for income tax purposes, the individual needs to have:
- A valid logbook to use the logbook method of calculating work-related car expenses. For other vehicles, the ATO recommends a logbook to demonstrate work-related use of the vehicle; and
- One electricity bill for the residential premises in the income year (i.e. to show that electricity costs have been incurred).
However, if odometer records have not been maintained as at the start of the 2022–23 or 2023–24 FBT or income year, the ATO will allow a reasonable estimate to be used based on service records, logbooks or other available information.
Source: ATO website
Contact KMT accountants now for advice or assistance with your FBT Return lodgement!
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This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
