To be eligible for FBT Exemption the vehicle must:

If an electric car qualifies for the FBT exemption, then associated benefits relating to running the car for the period the car fringe benefit is provided, can also be exempt from FBT.

Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year.

While the measure provides an exemption from FBT, the value of that fringe benefit is still taken into account in determining the reportable fringe benefits amount of the employee. That is, the value of the benefit is reported on the employee’s income statement. While income tax is not paid on this amount, it is used to determine the employee’s adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments.

Whilst the private use of an eligible electric car is exempt from FBT, the value of the fringe benefit must be considered when calculating if an employee has a reportable fringe benefits amount.

If the value of an employee's fringe benefits totals greater than $2,000 then the value must be reported on their payment summary.

This would be the case for a director or an associate even if they are not being paid wages by the company they will still be considered an employee for this purpose.

The reportable fringe benefits is included in the individual tax return and whilst it does not increase your taxable income is used in calculations for a number of offsets, loans and subsidies including (but not limited to);

• HELP repayments,
• Medicare levy surcharge,
• Child support.

Assuming your employer agrees, and the car meets the criteria, salary packaging is an option. While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available.

In order for a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing. Government modelling suggests that for individuals using a salary sacrifice arrangement to pay for a $50,000 electric vehicle, the saving would be up to $4,700 a year.

Your business structure makes a difference

By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.

Exemption is limited to cars

As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers.

The Federal Government is not alone in using concessions to encourage electric vehicle ownership.