Driving for a Greener Future: The ATO's Electric Car Exemption

If you’ve been looking for ways to reduce your carbon footprint and lower your car-related expenses, the new Electric Car Exemption proposed by the Australian Government in June of 2022 may be of interest to you. Following a recent announcement by the Australian Taxation Office (ATO), the proposal suggests that from 1 July 2022, eligible electric cars would be exempt from fringe benefits tax (FBT), as long as they meet certain requirements.

“The electric car exemption is a significant step towards achieving a greener future while also providing a financial incentive for individuals and companies to invest in new technology” says Client Manager, Dimitri Sarbanis.

Eligibility

So, how do you know if you're eligible for this exemption? First and foremost, the car must be a zero or low-emissions vehicle, such as a battery electric vehicle, hydrogen fuel cell electric vehicle, or plug-in hybrid electric vehicle. Additionally, the car must be designed to carry a load of less than one tonne and fewer than nine passengers (including the driver) and must be first held and used on or after July 1st, 2022. The car must also be used by a current employee or their associates (such as family members), and luxury car tax (LCT) must not have been payable on the importation or sale of the vehicle.

Who Can Benefit?

It's important to note that this exemption may not be helpful for sole traders or partners in a partnership unless they provide a car to other employees as a fringe benefit. For beneficiaries of a trust or shareholders of a company, the exemption would only be relevant if the benefit is provided to them in their role as an employee or director of the entity. The ATO have also confirmed that motorcycles and scooters are not included in this exemption, even if they are electric. Nevertheless, this is an exciting opportunity for many employees to make a positive change for the environment while saving on car expenses.

Eligible Car Expenses

If you're wondering which specific car expenses are exempt from FBT, they include registration, insurance, repairs or maintenance, and fuel (including electricity to charge and run electric cars), however, the cost of a home charging station isn't covered by the FBT car exemption, although it may be considered a property fringe benefit or an expense payment fringe benefit, according to the ATO.

As we await further announcements and guidance from the ATO, if you have any questions or need more information regarding your specific situation, our team of tax professionals are her to provide you with the necessary advice.

You can read more about Fringe Benefits Tax (FBT) on our recent blog: Christmas Parties and Tax: What You Need To Know.