Nick Bruining: Clock is ticking on the fringe benefits tax perks of picking an electric vehicle

As international oil prices remain stubbornly high, the rush to buy electric vehicles has gathered pace.

The Federal Chamber of Automotive Industries revealed battery EV sales for the month of April totalled 15,459 — more than double the 6010 sold at the same time a year ago.

The recent Federal Budget also reaffirmed a strategy that has allowed many EV buyers to effectively pay for their new car with pre-tax income. In some cases, the individual savings could add up to thousands of dollars a year.

The one rider to the strategy is that you’ll have to set things up before April 2029, when new rules kick in.

The concession arises when an employer provides the EV as a “fringe benefit” as a component of their remuneration.

In the past, and before a special fringe benefits tax was introduced, employers would provide non-cash benefits as an added perk of employment. Banks provided staff with discount home loans, for example, and others paid for holidays or health insurance.

Independent financial planner Peter Humble said the tax laws changed in 1986, and fringe benefits were rarely provided because of the tax implications.

“Almost all employer-provided fringe benefits are subject to a special fringe benefits tax paid by the employer at the rate of 47¢ per $1,” Mr Humble said.

“Employers providing fringe benefits usually factor that cost into the total employment cost of a staff member.”

That means the effective cost of a fringe benefit leaves the employee worse off than if they had taken the equivalent value as a normal wage payment and paid income tax.

But in the case of many fully electric vehicles, no FBT applies.

Announced on Budget night, vehicles eligible for the FBT exemption are battery electric vehicles up to the value of $75,000. While plug-in hybrids were part of the arrangement previously, they no longer qualify.

Similarly, new less generous rules will apply to new EVs bought after April 1, 2029.

Previously, the upper limit was the “luxury car tax” threshold, currently sitting at $91,387. This is still the case for EVs bought between now and March 31, 2027, but after that only a 25 per cent discount applies to the FBT rate of tax charged. That’s also the rate that will apply to all EVs bought after March 31, 2029.

When the vehicle is financed, typically through a novated lease, the financing costs and lease payments are also FBT-free.

“In simple terms, a novated lease arrangement is where the employer purchases the car using a lease that you would be responsible for when the lease finishes or if you leave that employer for any reason,” Mr Humble said.

Added to the list of FBT-free payments are the insurance, registration, repairs and maintenance costs, as well as the costs of recharging.

“And if you are recharging the car at home, the Australian Taxation Office allows you to effectively receive an FBT-free payment of 4.02¢ per kilometre,” Mr Humble said.

“That all adds up to a hefty saving and, in some cases, it could be as much as $7000 a year.”

While there’s no actual FBT payable, the value of the fringe benefit is reportable and will appear on your PAYG summary at the end of the financial year.

Reportable fringe benefits — or RFBs — form part of a person’s adjusted taxable income, which is used to determine eligibility for various tax and other concessions.

“Adjusted taxable income also includes voluntary concessional contributions to superannuation and an add-back of investment losses, typically generated if you are involved in negative gearing,” Mr Humble said.

Adjusted taxable income is used to determine whether you are liable for an extra 15 per cent contributions tax on concessional contributions to super, entitlement to family tax benefits, and the ability to access paid parental leave and subsidised child care.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association