The ATO has recently released guidance to assist in determining the application of the FBT exemption for EVs.
A Fact Sheet and a Draft Practical Compliance Guideline, PCG 2023/D1, have both been released. There is some helpful clarification provided, but a few other areas remain ambiguous. Here are some of the highlights.
What has been clarified?
Calculating electricity expenses
The cost of fuel, including electricity, is a car expense that needs to be determined for FBT purposes, where either:
- The operating cost method is being utilised for a car or residual benefit; or
- The employee has incurred the expenses as recipients’ payments towards a car benefit; or
- The employer is reimbursing the costs as an expense payment benefit.
The Draft PCG provides an option to use a rate of 4.20 cents per km to estimate electricity expenses, for fully electric vehicles only (not hybrids) provided:
- The employee charges their car at home at least some of the time, and the cost cannot practically be separated from the cost other household electricity usage;
- The employee keeps records of home electricity costs incurred; and
- The calculation is based on total kilometres travelled for the year and no other costs for electricity are included.
The rate applies regardless of the mix of home charging, charging at work, and paying for charging elsewhere. The rate also applies regardless of how much home charging may have related to electricity generated from solar panels and how much related to electricity purchased from the grid – although some cost must have been incurred.
An estimate of kilometres travelled in 2022/23 may be used if odometer records were not kept at 1 April 2022. This should be based on service records or other available information and is a transitional rule that will not be available in subsequent years.
Adopting this methodology is optional, and a year-by-year choice. But with the only alternative being to retain actual records, it is probably the only practical option.
The Draft PCG can also be applied by individuals wishing to claim deductions for use of their own vehicles.
Home charging equipment
Home charging equipment is considered a separate benefit, not part of a car benefit and therefore subject to FBT if paid for by the employer. If installation costs have been bundled into a lease agreement, the ATO considers they need to be pulled out and treated separately for FBT purposes.
Reportable fringe benefits
Despite the FBT exemption for qualifying EVs, taxable value calculations are still required in order to determine the reportable fringe benefits amount (RFBA) to be reported through single touch payroll for each employee. To calculate the RFBA, you can use either the statutory formula method, or the operating cost method, as usual. Pooled or shared cars, including EVs, are not reportable.
Plug-in hybrid sunset
Plug-in hybrid electric cars are only exempt until 1 April 2025, although if there is an existing financially binding commitment to provide the use of a car at that time, it can continue to be treated as FBT exempt until the end of that commitment. A lease is considered such a commitment, and refinancing a lease is considered a new commitment.
First held and used requirement
FBT exemption only applies if the first time the car is both held and used is on 1 July 2022 or later.
Road user charges
Road user charges (RUC) for EVs are considered by the ATO to be part of registration costs and therefore part of the car expenses that are exempt from FBT. Whilst we are not so sure about the validity of this position, we are happy to accept it. We also note that South Australia has abolished their RUC and Victoria’s is being challenged in the High Court.
New batteries that effectively maintain a car’s efficiency or function, or only make an incremental difference, can be treated as repairs and not subject to FBT. New batteries that create an enhancement, or capital improvement to the car (such as providing significantly more power and energy storage), will add to the cost price of the car.
GPS subscriptions are not considered to be car running expenses and therefore are not exempt from FBT. Installing a GPS in the car will be considered either a business accessory, or non-business accessory, depending on whether it is needed in the employee’s work. Non-business accessories add to the cost price of the car.
A charging cord is not considered part of the car and is considered a separate benefit if provided by the employer.
NFP concessional caps
Despite being reportable benefits, FBT exempt EVs do not ‘use up’ any of the annual concessional cap for an FBT exempt or rebatable employer.
What is still uncertain?
When acquiring a second-hand vehicle, employers need to consider whether the vehicle has ever been subject to luxury car tax (LCT). If no sale history information is available, the employer needs to make a best guess, using mechanisms such as an internet search on the make and model of the car to check its initial recommended retail price, so as to then determine whether LCT was likely to have applied.
There is no guidance on how to determine when a second-hand car was first used. There is also no obligation for the vendor of a car to pass on this information. Particularly for cars that were new in 2022, and particularly where the car may have been used overseas prior to importation, this may cause issues.
Fore more information, please contact Elizabeth Lucas.