EV FBT Exemption: How to avoid Fringe Benefits Tax

As part of its commitment to reduce carbon emissions and accelerate the transition to cleaner transportation, the Australian government has introduced the Electric Vehicle Fringe Benefits Tax (FBT) Exemption. This policy aims to make electric vehicles (EVs) more affordable for businesses and encourage their adoption across the country. In this article, we’ll dive into what the EV FBT Exemption entails and how it could shape the future of transportation in Australia.

What is the Fringe Benefits Tax?

Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits they provide to their employees, such as company cars. The tax is designed to ensure that these benefits are treated consistently with cash salary for income tax purposes. Typically, when a company provides an employee with a vehicle for private use, the company is liable for FBT on the value of that benefit.

The EV FBT Exemption Explained

Announced in the 2022-23 Federal Budget, the Electric Vehicle FBT Exemption removes the fringe benefits tax liability for employers providing eligible electric cars to their employees. This means that businesses can now provide their staff with EVs without incurring the additional FBT cost. The exemption applies to battery electric vehicles (BEVs) and fuel cell electric vehicles (FCEVs) provided the following conditions are met:

• The car has a first retail price below the luxury car tax threshold for fuel-efficient vehicles ($84,916 in 2022-23)
• The car is made available for private use by an employee on or after 1 July 2022
• The car is first held and used by the employer on or after 1 July 2022

Tesla’s and the FBT Exemption

Several Tesla models are well-positioned to benefit from the EV FBT Exemption, provided they meet the price threshold requirement. As a leader in the electric vehicle market, Tesla offers a range of battery electric vehicles that are eligible for the exemption.

Models like the Tesla Model 3 and Model Y, which have starting prices below the luxury car tax threshold, are particularly attractive options for businesses looking to take advantage of the FBT exemption and reduce their fleet costs while transitioning to cleaner transportation.

Plug-in Hybrids (PHEVs)s after April 2025

It’s important to note that plug-in hybrid electric vehicles (PHEVs) will no longer be eligible for the FBT exemption after 1 April 2025. However, there is a grace period for PHEVs that were already exempt before this date.

If a PHEV was exempt before 1 April 2025, and you have a financially-binding commitment to continue providing private use of the vehicle on and after that date, you can continue to apply the exemption. Keep in mind that any option to extend the agreement exercisable on or after 1 April 2025 is not considered binding for this purpose.

Business EV Fleets

One of the main barriers to EV adoption for businesses has been the higher upfront cost compared to traditional internal combustion engine (ICE) vehicles. However, the FBT exemption significantly reduces the effective cost of providing an EV to employees, making it a much more attractive option for companies.

By removing the FBT liability, businesses can save thousands of dollars each year per vehicle. This cost saving, combined with the lower operating and maintenance costs of EVs, makes the total cost of ownership much more competitive with ICE vehicles over the life of the car.

Impact on Consumer Adoption

While the EV FBT Exemption directly benefits businesses, it is also expected to have a flow-on effect on consumer adoption of electric vehicles. As more companies take advantage of the exemption and add EVs to their fleets, the secondhand EV market will grow over time as these vehicles are eventually sold.

An increased supply of used EVs at more affordable price points will make the technology accessible to a broader range of consumers. This is critical for widespread EV adoption, as the upfront cost remains a significant barrier for many households.

Environmental Benefits

The transport sector is one of the largest contributors to Australia’s greenhouse gas emissions. Encouraging the uptake of electric vehicles through policies like the FBT exemption is a key part of the government’s strategy to reduce emissions and combat climate change.

Electric vehicles produce zero tailpipe emissions, meaning they do not directly emit pollutants like carbon dioxide, nitrogen oxides, and particulate matter. As the electricity grid transitions to cleaner energy sources, the environmental benefits of EVs will only increase.

Challenges and Considerations

While the EV FBT Exemption is a significant step forward, there are still challenges to address to fully realize the potential of electric vehicles in Australia:

1. Charging infrastructure: A robust network of public charging stations is essential to support the growing number of EVs on the road.
2. Electricity grid capacity: As EV uptake increases, the electricity grid will need to be upgraded to handle the additional demand.
3. Battery supply and recycling: Ensuring a sustainable and ethical supply of battery materials, as well as developing recycling capabilities, will be critical as the EV market grows.

Despite these challenges, the EV FBT Exemption is a clear signal of the government’s commitment to accelerating the transition to cleaner transportation. As more businesses embrace electric vehicles, we can expect to see a ripple effect throughout the market, bringing us closer to a more sustainable future.

Summary

The introduction of the Electric Vehicle FBT Exemption marks an important milestone in Australia’s transition to cleaner transportation. By making EVs more affordable for businesses, this policy is set to drive uptake in corporate fleets, which will ultimately flow through to the consumer market as well.

While challenges remain in terms of infrastructure and supply chains, the FBT exemption sends a clear signal that the government is committed to supporting the shift to EVs. As more businesses and individuals embrace electric vehicles, we can look forward to a future with lower emissions, cleaner air, and a more sustainable transport sector.

For anyone considering EV’s for fleet usage, let us know in the comments if the FBT exemption has been a substantial decision maker. The ATO plans to review this policy by mid-2027, so we can expect some interesting statistics then.