2023 FBT Series: Electric Vehicles

June 20, 2023

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To see the latest updates on this topic, read our article: 2024 FBT Series: What you need to know about vehicles, electric vehicles and non-cars.

This article originally ran in The Tax Institute’s TaxVine newsletter on 10 March 2023.

You could be excused for thinking the first electric vehicles have just rolled off the production line, given the sudden flurry of associated tax law and the emergence of Australian Taxation Office (ATO) guidance to assist taxpayers in understanding the relevant taxation implications.

Rather, the truth lies in a combination of factors that has seen the rapid expansion in demand for electric vehicles — a focus on climate change and related sustainability measures, a shift in political and consumer behaviours and, recently, new government policy to fast-track community, government and business’ transition to electric vehicles.

ATO guidance in this area is critical. Why? — the laws developed last century did not contemplate electric vehicles — and FBT is arguably the area of law that throws up the greatest interpretive challenges.

The ATO has had to swiftly consider and formulate its guidance in this respect, and on 24 February this year, it released a Fact Sheet for Employers (ATO fact sheet). Its website indicates that a draft Practical Compliance Guideline (PCG) will follow this month to help taxpayers calculate electricity charging costs (please see What’s emerging? Draft Practical Compliance Guideline (PCG 2023/D1) provides calculation methodology for electric vehicle home charging costs released after this publication). Upon reflection, it would be interesting to understand how taxpayers with electric vehicles have managed to calculate and evidence such costs to date, given the inherent challenges.

What you need to know — the basics

On 12 December 2022, the Treasury Laws Amendment (Electric Car Discount) Act 2022 (the Act) received Royal Assent, giving effect to the Government’s pre-election policy announcement to provide an FBT exemption for certain electric cars.

Here is a summary of the key requirements to access the exemption:

The vehicle must fall within the definition of a car for FBT purposes — that is, motorcycles, e-bikes and vehicles designed to carry a load of greater than one tonne are ineligible.
The car must be a battery electric, hydrogen fuel cell or plug-in hybrid car.
The car must have been first ‘held and used for the first time’ on or after 1 July 2022 — this means that you can be eligible if you held (for example, owned or leased) the car pre-1 July 2022, but the car was not available for use until on or after that date. Accordingly, where a second-hand electric vehicle is held and used pre-1 July 2022, but sold to a new owner on or after 1 July 2022, the car benefit would not be exempt from FBT as the car was held and used pre-1 July 2022 (by the previous owner). As a related note, determining whether this criterion is met may be tricky for 2022 model second-hand vehicles — especially as there is no obligation for a vendor to provide this information to a purchaser.
The first retail sale of the car is below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022–23) — the ATO has confirmed that, if you don’t have access to this information, you can use other sources of information, such as an internet search, a car report or an independent valuation that estimates the first retail sale price (and any later higher resale values — this is no longer considered to be an abnormal concept).

With respect to plug-in hybrids, the exemption will be available only until 31 March 2025, unless the taxpayer maintains a pre-existing commitment from on or before that date (for example, a lease agreement that has not been modified post that date). This will give employers and employees confidence in entering into medium- to long-term leases for such vehicles. It is also indicative of what transitional measures should be announced if the exemption for battery or hydrogen fuel cell vehicles was to be withdrawn (noting that a formal review of the FBT exemption’s effectiveness and relevance is scheduled to occur in the 18-month period following its first three years of operation).

What you need to know — the challenges

With all new legislation come challenges relating to interpretation. However, many of the interpretative challenges relate to matters unrelated to the (new) Act.

Here is a summary of the issues to be aware of and to monitor, as not all these interpretative challenges are clarified or resolved at the time of writing this update:

Charging infrastructure — the ATO has confirmed that in-home charging equipment will not fall within the scope of the FBT exemption. If provided to or reimbursed for employees, these are likely to constitute separate property, residual or expense payment fringe benefits — likely attracting full FBT.
On a related note, should such charging infrastructure costs be included within the financed amount of a lease, they will need to be extracted from the lease for the purposes of determining any FBT implications.
State-based rebates on acquisition of electric vehicles — there is a risk that where these costs are applied to reduce the financed amount of a lease, with such risk being heightened in Victoria given the rebate is applied for and paid to the motor vehicle trader, the lease may not be regarded as a bona fide lease. Instead, it may be treated as a hire purchase arrangement, which will likely not enable access to the FBT exemption — particularly for novated leases. Further ATO clarification is being sought, however, references in the ATO fact sheet to bona fide lease considerations may be viewed as an ominous sign.
GPS or similar subscriptions and car parking expenses related to charging are not car expenses and, thus, don’t fall under the related FBT exemption for such expenses. They will constitute separate fringe benefits if paid by employers for employees.
Surprisingly, the ATO fact sheet states that the range of State-based and Territory-based road user charges will be treated as registration costs and, therefore, exempt from FBT under the car expenses exemption. It remains to be seen whether these charges will remain valid given the current Constitutional challenge.
Reportable Fringe Benefits — although noted as the final item, this aspect is of most concern to the ATO:
- Firstly, exempt benefits are usually non-reportable — not so for cars that are exempt under the FBT exemption (explained as an integrity measure in the relevant Explanatory Memorandum). This is a major compliance change and employers need to be aware of the reporting obligation.
- Secondly, without proactive communication (by employers, lessors and salary packaging administrators), the impact of this stands to be a significant financial surprise for employees who are eligible for government entitlements or who have relevant financial commitments. The amount of the reportable fringe benefit is likely to be significant in value and detrimental effect. It would be prudent for employees to seek independent financial advice in advance of entering into a commitment for an electric vehicle.
- Thirdly, the requirement to calculate a ‘notional’ taxable value for an exempt vehicle creates additional administration for employers and employees alike.

Electric vehicles and related products will continue to evolve and be subject to innovation at a rapid pace. It is likely that ongoing updates to the law and associated guidance will be required to ensure that emerging taxation (and other) consequences are understood. In this respect and, as noted above, stay tuned for the release of a draft PCG later this month providing much needed guidance on how to calculate electricity (fuel) costs.

For further information, please don’t hesitate to contact one of our Employment Taxes specialists or refer to the following articles on the PwC employment taxes website: