Salary packaging an electric vehicle under the new FBT exemption
From 1 July 2022, new electric vehicles under the luxury car limit are exempt from fringe benefits tax. This means an electric vehicle under $84,916 can be salary packaged for a substantial tax benefit. When the Bill becomes law, the FBT exemption will apply retrospectively from 1 July 2022 to eligible electric cars that are first held and used on or after 1 July 2022.
A car must be classified as a zero or low emissions vehicle for the exemption to be available. Zero or low emissions vehicles include:
battery electric vehicles
hydrogen fuel cell electric vehicles, and
plug-in hybrid electric vehicles.
Also, if you purchased an electric vehicle before 30 June 2022 but have not yet received it, you may be eligible for this exemption.
This exemption will allow employees to salary package an electric vehicle from their employer to obtain a substantial tax benefit. This legislation intends to improve the viability of purchasing a new electric vehicle.
Salary sacrifice
A car that is not an electric vehicle may cause an FBT liability for an employer if an employee enters a novated lease. While some concessions are available to employees who obtain a car fringe benefit, these are usually passed on and paid for with pre-tax dollars.
We have prepared an example illustrating the difference an electric vehicle will make on salary sacrifice options. In this example, an individual earning $156,000 will obtain a tax benefit of $11,593 in the 2022–23 income year (assuming no further changes are made to the individual tax brackets).
Electric car
On-road cost: $78,894
Lease repayments: $1,316 per month for 4 years
Estimated monthly running costs: $358 per month for 4 years
Balloon payment: $30,384
Petrol car
On-road cost: $52,172
Lease repayments: $854 per month for 4 years
Estimated monthly running costs: $562 per month for 4 years
Balloon payment: $19,670
| Comparison of Car Costs | ||||
| Petrol car | Electric Car | |||
| No Package | Salary Package | No Package | Salary Package | |
| Gross Salary | $ 156,000 | $ 156,000 | $ 156,000 | $ 156,000 |
| Less motor vehicle costs | $ (16,992) | $ (20,088) | ||
| Less FBT payable¹ | $ (10,202) | $ - | ||
| Addback input tax credits² | $ 5,356 | $ 6,275 | ||
| Remaining cash salary | $ 156,000 | $ 134,162 | $ 156,000 | $ 142,187 |
| Net tax and Medicare Levy 22-23 | $ (45,127) | $ (36,719) | $ (45,127) | $ (39,809) |
| After tax lease and running costs | $ (16,992) | $ - | $ (20,088) | $ - |
| Net Cash | $ 93,881 | $ 97,443 | $ 90,785 | $ 102,378 |
| Annual Savings | $ 3,562 | $ 11,593 | ||
| Savings over 4 years | $ 14,248 | $ 46,372 | ||
| Balloon Payment | $ (19,670) | $ (19,670) | $ (30,834) | $ (30,834) |
| Post Tax Payment | $ 19,670 | $ 5,422 | $ 30,834 | $ (15,538) |
By salary packaging an electric vehicle, there is an exemption from fringe benefits tax (FBT). However, there is a difference in the price of an electric vehicle with a comparable petrol vehicle.
Overall, due to the concessional FBT treatment of cars, taxpayers are better off by salary packaging the vehicle through a novated lease.
If choosing to go with a petrol car, the approximate savings over a 4-year period by salary packaging is $14,248. As the balloon payment is $19,670, a taxpayer would be required to find the additional $5,422 from their post-tax salary to cover the final payment.
If choosing to go with an electric car, the approximate savings over a 4-year period by salary packaging is $46,372. This saving would cover the balloon payment of $30,384, with $15,988 in savings remaining post-tax salary.
Please contact our office if you would like to know more about the exemption or salary packaging and discuss any purchase options you may have available.
Calculations
1. FBT on the car used exclusively for private purposes (petrol car only)
Statutory formula: $52,172 × 20% - 0 = $10,434.40 × 2.0802 (Type 1 GST inclusive) = $21,705.64
FBT payable: $21,705.64 × 47% = $10,202
2. GST input tax credits
Petrol car
Cost of car $52,172 ÷ 11 = $4,743
Running costs $562 × 12 ÷ 11 = $613
Yearly total $4,743 + $613 = $5,356
Electric car
Cost of car (at car limit) $64,741 ÷ 11 = $5,885
Running costs $358 × 12 ÷ 11 = $390
Yearly total $5,885 + $390 = $6,275
Source - Treasury Laws Amendment (Electric Car Discount) Bill 2022; 27 July 2022, accessed 1 Aug 2022
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