The change in FBT rules applied from July 1 this year and means employers do not pay FBT on eligible EVs and associated car expenses for novated leases on EVs and PHEVs which are under the luxury car threshold of $84,916.

Pitcher Partners believes that this new regulation makes the EVs novated leasing (or company cars) an enticing offer. 

“The new tax ruling is beneficial for the employer – as they typically pay the FBT – aiding their transition to a green fleet and saving on vehicle FBT,” said Pitcher Partners’ senior manager Aidan Cousin.

“The employee is left to wear the impact as a result of higher (more expensive) EV prices, meaning that the employee will be relatively worse off at the end of the financial year.”

He said that some workplaces provide employees with a company car as a tool of trade, as part of their compensation, or to give the possibility to finance a novated lease. 

“However, as workplaces and companies move their fleets to a greener alternative, an unintended consequence of this can be the increased employee’s tax liability,” Mr Cousin said.

Aidan Cousin

To be eligible for the FBT exemption three requirements must be satisfied: 

• It must be a vehicle (other than a motorcycle or similar vehicle) designed to carry a load of less than one- tonne and fewer than nine passengers 
• The value of the car at the time of its first retail sale must not exceed the luxury car tax threshold for fuel efficient vehicles (currently $84,916)
• The car must be a “zero or low emission car” which includes a battery electric vehicle, a hydrogen fuel cell electric vehicle or plug-in hybrid electric vehicle.

The FBT exemption will be available for eligible EVs provided to employees under salary packaging arrangements. This car benefit will be a ‘reportable fringe benefit’ and thus considered in determining eligibility for certain tax offsets and means tested benefits and liability for certain government charges.

FBT normally applies to a novated lease and many other benefits provided by employers to employees. Where FBT is payable, the novated lease can include after-tax contributions to offset the FBT which reduces the income tax savings.

An individual repayment income is composed of taxable income plus any total net investment loss, total reportable fringe benefits amount (RFBA), reportable super contributions and exempt foreign employment income.

Mr Cousin said that the introduction of the latest ruling benefits the employer by having a greener fleet, but the average middle-income earner will find it even harder to meet their monthly expenses.

He presented two examples of the impact on the reportable FBT – one with an individual that also has a higher education local program (HELP) repayment; and the other a family with childcare benefits.

Higher Education Loan Program (HELP) repayment by an individual:

The calculation below was performed using the grossed-up amount type 2 (as the individual will not be entitled to a GST). 

“We researched 20 EVs which are under the threshold of $84,196, and the average price of these EVs was $57,500,” Mr Cousin said.

“We picked a comparable ICE vehicle that represents the same segment and market position with a drive away price of $30,000.

“In both cases we kept vehicles held throughout the year, and always available for use to the taxpayer.”

Source: ATO.gov.au, Pitcher Partners calculations

“We then analysed how the price disparity would impact a salary of an individual making $80,000 per annum who is repaying HELP, as this amount is representative of an average HELP repayer.”

“HELP is repaid based on the repayment income and the associated rate given by the ATO. This results in the difference between the ICE vehicle and the EV of $1642.

“That means that an individual with an EV instead of an ICE vehicle would have an impact of $1642 per annum reduction in take home pay at tax time.”

Example 2 – a family with childcare benefits.

“A family, with a combined income of $200,000, living in Sydney metro, that sends their child five days a week to childcare, would expect to pay in excess of $43,000 per annum,” Mr Cousin said.

“The family would be $868 better off with the ICE vehicle than with the EV vehicle. This analysis has nothing to do with the higher price of EVs and, in fact, the quicker the price disparity disappears the better this will be for individual family taxpayers. 

“However, with the rising interest rates, the current high inflation, and the discontinued tax offsets for low to middle income earners, this new tax ruling would primarily benefit the employer, leaving the employee in a worse position than they might expect. 

“Employers transitioning to green fleets need to be aware of this and be open to finding ways to make sure employees are no worse off.

“The bottom line is that the introduction of this ruling benefits the employer by having a greener fleet, but the average middle-income earner will find it even harder to meet their monthly expenses.”

By Neil Dowling