The Australian Taxation Office (ATO) has issued guidance on how to calculate the costs charged under the federal side benefit tax (FBT) exemption scheme, which is available on a wide range of electric vehicles (EVs).
The Draft Practical Compliance Guide was issued on March 31, with a comment period ending May 26.
The ATO did not give an expected completion date for the final version, but it is the latest guidance and should clarify at least a few things.
Remind me, what is the FBT waiver?
FBT is a tax paid on the value of benefits provided to employees in addition to their wages – for example a work car provided for personal use or an automobile provided through a new lease agreement.
This tax exemption for electric and hybrid vehicles (PHEVs), known as the Electric Vehicle Discount Bill, was passed by parliament with amendments last November.
It offers FBT waivers for EVs and PHEVs that cost less than (about) $85,000, making them cheaper to run and encouraging uptake from businesses and users.
This is designed to further stimulate the used market in the short term, further enhancing affordability.
In a salary package arrangement in which the employer pays the pre-tax car rental on behalf of the employee (known as a new lease), FBT is paid by the employee. When a company car is provided to an employee, FBT is paid by the employer.
The ATO offers a formula to calculate loans based on the underlying car price with a 20 percent load; in addition to the employee’s contribution to operating the vehicle, its preliminary personal use rate, and the length of the vehicle’s lease during the financial year.
Every major player in this space SG Fleet – a new government, corporate and rental service provider – this “total” benefit value could equate to thousands of dollars per year.
Treasury figures claim employers can save up to $9,000 in calculated FBT payments on a hypothetical $50,000 EV or PHEV provided to employees.
For the same vehicle, employer-sponsored individuals on a new lease (payments made by the employer on behalf of the employee, before taxes) can save up to $4700 a year. year.
There are some regulations. Essentially, a new EV or PHEV won’t be subject to FBT just as long as they cost less than the luxury car tax threshold of $84,916.
Vehicles must also be designed to carry less than one ton and less than nine passengers. PHEVs will also no longer be part of the program when purchased from April 2025.
What is this Draft Guidelines about?
Basically, clarify the cost of paying taxes. Even for FBT-exempt vehicles, it is necessary to calculate the operating costs to deduct from the employer’s FBT obligation, in order to know the amount of the employee’s reportable side benefit (RFBA).
Employers with FBT obligations and individual taxpayers who pay work-related car costs must account for the electricity costs incurred when charging at home.
This is because electricity use to charge EVs is combined with total household consumption and often cannot be identified and priced separately.
The ATO has developed a method to make costing easier, but remains open to those who wish to keep detailed records.
The choice is per vehicle and applies to either full income or FBT years. However, it can be changed by the employer or individual from year to year.
The deterministic rate applicable to FBT years or earnings years beginning on and after April 1, 2022 is 4.2 cents per kilometer. This does not include petrol PHEVs.
If there is a cost to charge your EV at a commercial charging station, you can use this home charge if you wish.
If odometer records are not maintained, the ATO says a “reasonable estimate” may be used based on service records, logs or other available information.
Home charging equipment paid for by the employer as part of the package is considered a separate benefit and is therefore also subject to the FBT.
For example:
The employer purchased an EV for $60,000 (GST included). It was provided to an employee for private use during the FBT 2022-2023 year for 274 days and that employee covered 27,037 km.
Since the value of the EV is below the LCT threshold and is first withheld after June 30, the car supplement benefit is not subject to FBT.
However, its taxable value must be determined for the purposes of determining the employee’s RFBA for the FBT 2022-23 year in which the exempt benefit is provided.
Employees reported charging their electric vehicles at home throughout the year, paying their electricity bills and providing employers with the necessary declarations of electricity costs.
The cost of charging at home is part of the recipient’s contribution, which, as mentioned earlier, is factored in the overall ATO calculation formula.
Applying the home charging fee for EVs, the staff has calculated the electricity cost when charging at home as follows:
Charge EV = total kilometers traveled x 4.2 cents per kilometer. So 27,037 x 4.2c per kilometer = $1135.
Therefore, the taxable value for FBT purposes is:
The EV base value multiplied by the statutory formula percentage previously flagged, multiplied by the number of days held in the FBT year divided by 365, and finally deducting the employee contribution.
That’s $60,000, multiplied by 0.2, multiplied by 274 divided by 365, minus $1135. That equates to $7873.
According to the ATO rules, because the taxable value of the car allowance provided to an employee exceeds $2000 during the FBT year, the employer must include the total taxable value in the employee’s RFBA.
A little confused? We, too. As always, this is not tax advice and we encourage you to consult your accountant or your employer’s payroll.
