Other considerations for zero or low emissions vehicles
The Treasury Laws Amendment (Electric Car Discount) Act 2022 (the Electric Car Discount Act) provided an important incentive to facilitate the increase of zero and low emission vehicles (ZLEVs) take-up in Australia, by providing a Fringe Benefits Tax (FBT) exemption for eligible vehicles. The Act has generated significant interest from businesses and employees and is seen as a positive measure.
There are several aspects that employers must consider when providing EVs to employees, including under salary packaging arrangements, with one of the most critical being how to calculate running costs of the vehicle – PCG 2024/2 seeks to address this.
As with all practical compliance guidelines, employers/individuals have the choice on whether to rely on the guideline or not. It is not compulsory. However, in our view, most individuals or employers are likely to adopt the PCG as, absent the PCG methodology, there is likely no accurate way to calculate the running costs relating to electricity charging, nor the recipient’s payment (if utilised to reduce a fringe benefit’s taxable value).
However, the major shortcoming of the PCG is the lack of guidance available on how to accurately calculate running costs or recipient’s payments for plug-in hybrids. Given the 4.2 cents per kilometre rate is an estimation or approximation at best, the ATO similarly could have considered an approximation for plug-in hybrids. Whilst there is, perhaps, more variability for hybrids in terms of the fuel source for ongoing consumption, a PCG rate and methodology would be useful as a baseline, noting again that it would not have been compulsory.
With the finalised PCG and Fact Sheet published since the start of last year, the ATO is continuing to provide guidance to account for the various tax implications of modern EV arrangements. We would encourage all employers who are in the process of transitioning to an electric fleet, or who have permitted novated leasing for the relevant FBT exempt ZLEVs, to consider the various tax implications to both the business and the individual. For more information, please see our deep dive on the FBT spectrum for electric car benefits.