Are you looking to take advantage of tax benefits when purchasing an Electric Vehicle (EV)? The Fringe Benefits Tax (FBT) exemption on electric cars offers significant savings, particularly if you choose a novated lease arrangement. This can be a game-changer for those wanting to lower their car expenses while driving a fuel-efficient, low-emission vehicle.

The FBT exemption makes it more affordable to own an electric car by reducing the taxable value of the vehicle and lowering running costs such as fuel and maintenance. By choosing a novated lease, you can enjoy pre-tax salary deductions, which further reduce the overall cost of ownership, making EVs more accessible to a wider range of buyers.

If you're ready to learn more about maximising your savings through the FBT exemption and novated leasing, schedule a complimentary consultation with us today.

What you need to know about the EV discount

The FBT exemption on electric cars can lead to significant savings, especially for vehicles priced up to the luxury car tax threshold of $91,387 for fuel-efficient cars. This tax exemption can be a major benefit for employees using novated leases, making the cost of owning an eligible electric car much more affordable.

In addition to tax savings, electric vehicles can also lower running costs. For example, some estimates show that a New South Wales commuter could save around $30 per week by switching from a petrol car to an electric model. Lower maintenance and fuel costs make electric cars an attractive choice for many drivers.

By combining the FBT exemption with novated leasing, you can maximise your savings and reduce car expenses while benefiting from a fuel-efficient, low-emission vehicle. This is a great opportunity to reduce your pre-tax salary and enjoy the long-term savings an electric car can offer.

Importance of the FBT exemption

Vehicles acquired through salary-sacrifice or company fleet arrangements are typically sold after 3 to 4 years, often still in excellent condition. With the Australian Government's electric car discount, the adoption of Electric Vehicles (EVs) in these fleets is growing, accelerating the availability of second-hand EVs for everyday Australians.

In the coming years, thousands of these electric cars, many still under warranty, will enter the second-hand market. This provides a great opportunity for buyers to own a low-emission vehicle at a more affordable price, while still enjoying the benefits of fuel efficiency, lower running costs, and potential tax savings from EV incentives.

As more fuel-efficient vehicles, including plug-in hybrids and battery electric cars, become available, Australians will have more options to make the switch to eco-friendly driving without the higher upfront cost of a new EV.

Key limitations of the FBT exemption

If you're considering buying an Electric Vehicle (EV) for personal use, the Fringe Benefits Tax (FBT) exemption applies only when using a novated lease. This option allows you to benefit from the tax savings that come with the FBT exemption, which isn’t available if you pay cash or take out a traditional car loan, including borrowing against your home loan.

A novated lease involves your employer facilitating the lease payments through the payroll system. Since this doesn't result in any financial burden on the company, it’s mainly a paperwork process. Employers typically agree to this arrangement as it simplifies the leasing process for the employee.

Additionally, there could be minor payroll tax benefits for employers. Because the lease payments are deducted from the employee’s salary before tax, it reduces the overall taxable income, which in turn lowers the payroll tax liability for the company.

Read our article "FBT Statutory Method vs Operating Cost Method" to learn more about Fringe Benefits Tax"

Considerations for Electric Vehicle owners

Although the Fringe Benefits Tax (FBT) exemption on electric cars applies, reportable fringe benefits still need to be reported by your employer. This means that, while you're not directly taxed on the value of the fringe benefit, it can affect other government benefits or obligations. These include the private health insurance rebate, student loan repayment rates, and eligibility for family assistance payments. It’s always a good idea to seek independent financial advice to understand how this could impact your financial situation.

Starting 1 April 2025, Plug-in Hybrid Electric Vehicles (PHEVs) will no longer be eligible for the FBT exemption. Battery-Electric Vehicles (BEVs) will continue to qualify, although the exact end date for this incentive is likely closer to 2027. If the exemption is removed after 2025, the vehicle may become subject to FBT, which could make it more financially advantageous to sell the car.

To learn more, read our article "New home EV charging rate guidelines".

Do you need help with FBT and electric vehicles?

Navigating Fringe Benefits Tax (FBT) when it comes to Electric Vehicles can be complex, especially with the different exemptions and thresholds in place. If you're unsure about how to apply FBT to your electric or low-emission vehicle fleet, or if you want to make the most of the available exemptions, seeking professional advice is a smart move.

Each situation is unique, and ensuring compliance while maximising benefits like the electric car exemption or novated leases requires a tailored approach. By consulting with an expert, you can avoid costly mistakes and make informed decisions that suit your business needs.

If you need assistance with FBT or understanding how electric vehicle incentives apply to your business, reach out to us today.