“What can I do to pay less tax?”
At First Financial, we provide financial planning solutions that leverage tax-effective strategies. That’s why we hear this question often. A typical response might include negative gearing or tax-deductible super contributions.
But, if you’re interested in something more innovative, did you know that you can get an FBT exemption for electric vehicles?
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 came into effect on 12 December 2022, granting an FBT exemption for eligible electric vehicles valued below $84,916.
What is a fringe benefit tax exemption (FBT)?
Firstly, FBT is a tax paid by employers on certain benefits offered to their employees and their families. These benefits can include:
- The use of a work car for private purposes
- Gym membership
- Free tickets and other entertainment
- Reimbursing school fees
- Discounted loans
- Other benefits provided under a salary sacrifice arrangement.
An FBT exemption is a legal means to reduce FBT.
About the legislation
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 grants a fringe benefits tax exemption (FBT) to employers who provide current employees with an electric vehicle (EV). The EV must qualify as a zero or low emissions vehicle with a value at first retail sale below the luxury car tax threshold for fuel efficient vehicles ($84,916). Motorcycles and scooters do not qualify, even if they are electric.
This piece of legislation aims to provide incentives and benefits for transitioning to more sustainable vehicles in Australia by reducing the tax burden associated with them.
What is the benefit for me?
In addition to the evident environmental advantages, opting for this choice will also yield significant financial benefits.
A novated lease offers tax benefits such as buying the car GST-free and paying for running costs with pre-tax dollars, resulting in financial savings.
But then you must make after-tax contributions to offset FBT, resulting in a financial loss.
The FBT adjustment can significantly reduce the tax benefits of salary packaging a car, potentially resulting in financial loss over the car’s lifespan. However, with the FBT exemption, packaging an eligible car lets you pay expenses before taxes, without the drawback of an FBT adjustment.
Let’s break down the savings from the FBT exemption
Picture yourself as an employee who needs to make an after-tax contribution to offset the taxable value of a car fringe benefit provided by your employer.
The car is worth $75,000 and the ATO rate is 20%. That works out as a $15,000 per annum reduction in take home pay.
Now, let’s say the FBT exemption applies. The taxable value reduces to zero and eliminates the after-tax contribution ($15,000) required from the employee. This is a significant tax saving.
Things to consider
Please note, that while you won’t have to pay FBT for using an eligible electric car for personal purposes, your employer must still include the value of this benefit when determining your reportable fringe benefits amount (RFBA). Total amounts exceeding $2,000 in a financial year result in an RFBA on your payment summary.
This can impact your HECS or other repayments to the ATO, as it will increase your adjusted taxable income (ATI).
Talk to an expert financial advisor
It is a good thing that the government is actively promoting greener choices that will pave the way to a sustainable future. The monetary savings involved are a welcome bonus.
The FBT exemption presents a valuable opportunity for tax reduction; however, navigating its technical aspects can be complex. At First Financial, our experienced, knowledgeable advisors are happy to discuss and clarify how the exemption specifically applies to your situation.
Contact us today to learn more.
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