What’s emerging? Draft Practical Compliance Guideline (PCG 2023/D1) provides calculation methodology for electric vehicle home charging costs

April 28, 2023

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On 31 March 2023, the Australian Taxation Office (ATO) released PCG 2023/D1 - Draft Practical Compliance Guideline - Electric vehicle home charging rate - calculating electricity costs when charging a vehicle at an employee’s or individual's home (PCG 2023/D1), which provides a proposed “shortcut” cents-per-kilometre method for valuing the cost of electricity when an electric vehicle (EV) is charged at an employee’s or individual’s home.

Following the increased takeup in EVs, and the recent Electric Car FBT exemption, the PCG 2023/D1 will help address the inherent difficulty in calculating electricity costs incurred in charging electric vehicles at residential premises, as usage is typically combined with the total electric consumption of the household and cannot be separately identified.

The shortcut method

Subject to eligibility criteria outlined below, where an employer or individual chooses to rely on PCG 2023/D1, the Commissioner will not apply compliance resources to review the calculation of electricity costs where they apply a EV home charging rate of 4.20 cents per kilometre to calculate the cost of electricity when charging at residential premises. This rate will apply to the Fringe Benefits Tax (FBT) year commenced 1 April 2022.

We have summarised the eligibility criteria below:

Eligible Vehicles	Eligible Employer (for FBT purposes)
This guideline only applies to zero emission vehicles (including cars and motor vehicles) that: Use one or more electric motors to drive; and Are fuelled by either An off-vehicle electric power source; A battery; An electric generator, or A hydrogen fuel cell. Plug-in hybrid vehicles (which have an internal combustion engine) cannot rely on the shortcut method outlined in PCG 2021/D1.	For an employer to be able to rely upon the PCG, they must: Provide the electric vehicle to an employee or associate for private use resulting in the provision of a car benefit or residual benefit; or Pay for expenses associated with the car resulting in a car expense payment benefit. The employee or associate must charge the electric vehicle at a residential premises, where the charging cost cannot be practically segregated from the cost of running other electric appliances at the premises.

Eligible Vehicles

Eligible Employer (for FBT purposes)

This guideline only applies to zero emission vehicles (including cars and motor vehicles) that:

Use one or more electric motors to drive; and
Are fuelled by either
- An off-vehicle electric power source;
- A battery;
- An electric generator, or
- A hydrogen fuel cell.

Plug-in hybrid vehicles (which have an internal combustion engine) cannot rely on the shortcut method outlined in PCG 2021/D1.

For an employer to be able to rely upon the PCG, they must:

Provide the electric vehicle to an employee or associate for private use resulting in the provision of a car benefit or residual benefit; or
Pay for expenses associated with the car resulting in a car expense payment benefit.

The employee or associate must charge the electric vehicle at a residential premises, where the charging cost cannot be practically segregated from the cost of running other electric appliances at the premises.

What does this mean from an FBT perspective?

From an FBT perspective, there are three key scenarios where the EV home charging rate may be applicable.

Firstly, where a car benefit is provided, the EV home charging rate may be applicable to determine the costs for the:

statutory formula method - to include in the recipient’s payment component;
operating cost method - to include the electricity charging cost, both for the operating cost and the recipient’s payment components; or
reimbursement by the employer to the employee where the expenditure is a Division 28 car expense.

Importantly, for EVs that qualify as exempt, Reportable-Fringe-Benefit-Amounts (RFBAs) are still required to be calculated. As such, the EV home charging rate may still be relevant for RFBA purposes, even where the car benefit itself is exempt for FBT purposes.

Secondly, where a non-car is provided, a residual fringe benefit will arise. These vehicles are not included within scope of the FBT exemption for electric vehicles. The taxable value is calculated under the private kilometres method, or the operating cost method.

Finally, a car expense payment fringe benefit may arise where an employer reimburses the home charging expenses for an electric vehicle that the employee owns.

Other considerations

It is the employer’s (or individual’s) choice to rely on the shortcut method. The choice is per vehicle and applies for the whole of the FBT (or income) year. However, the choice can be changed from year to year.

Where an EV has been charged at home and at a commercial charging station, a choice has to be made. The EV home charging rate can be used, but only if the actual costs incurred at a commercial charging station are disregarded. If the actual costs incurred are alternatively used, the shortcut method cannot be applied.

Given the shortcut method is based on kilometres travelled, taxpayers must keep a record of the distance travelled by the car using odometer records. The ATO has allowed a transitional approach for the 2023 FBT - where odometer records have not been maintained as at 1 April 2022, a reasonable estimate may be used based on service records, log books or other available information.

Key Takeaways

Following the recently enacted FBT exemption for certain electric cars, and a shift in demand towards EVs, PCG 2023/D1 provides timely guidance to assist in calculating electricity costs when charging a vehicle at an employee's or individual's home.

As with all practical compliance guidelines, employers/individuals have the choice to rely on the guideline. 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 operating costs relating to electricity charging, nor the recipient’s payment. The short cut method comes with a record keeping requirement of maintaining odometer records to track the distance travelled by the car. From an FBT standpoint, employers will need to ensure they implement the necessary processes to obtain this detail.

There remains, however, a genuine inability to accurately calculate operating costs or recipient’s payments for plug-in hybrids. The exclusion of plug-in-hybrids constitutes a real shortcoming of the PCG. Given the 4.2 cents per kilometre rate is a loose approximation at best, it is difficult to understand why a similar approximation could not be afforded to plug-in hybrids.

Comments can be made on PCG 2023/D1 until 26 May 2023. PwC will be making a submission.

If you have any feedback you would like us to include, or wish to understand more about the impacts of the shortcut method, please reach out to your PwC Employment Taxes specialist for assistance.