TAX FREE ELECTRIC VEHICLES

That’ll get your attention.

Parliament is finally back. And with it – potentially new tax legislation!

Whilst FIFA getting tax-exempt status impacts me very little, I am reasonably excited* about the introduction of the FBT exemptions for electric vehicles.

We’ve been waiting for a few months to see what restrictions would be placed on this exemption.

From an employer and business perspective? It’s actually pretty good, and may go a long way to increasing the uptake in electric vehicles in Australia.

(It’s potentially not as great a deal for the employee though - I’ll get to them eventually).

(Also this isn’t yet law – someone could have a hissy fit about the environment in Parliament and demand changes).

Let’s use the following example:

- Electric vehicle costs $77,000 (GST-inclusive)

- Business purchases EV and provides to the founder’s spouse

- No business use for the vehicle, with no after-tax contribution from the founder or spouse

- Due to the above, there’s an implied reliance on the statutory method of calculating the taxable value for FBT

- Business is taxed at the base rate (25%)

- Business is liable for payroll tax, and we’re in NSW

Let’s compare the cost to the business, against the standard FBT statutory method treatment

*Chris Heyes - if you’re out there, please tell me this is correct.*

Assuming you were going to buy the car anyway, this seems a pretty good deal. $12,480 in cash savings to the business, and you get a new electric vehicle!

*Not indicative of the views at AKL Tax Advisory*

BUT (and there’s always a but) – the one thing the legislation has kept in play, is that the benefit provided, still counts from a reportable fringe benefits amount (RFBA) perspective, even when there’s zero FBT payable!

So this effectively means you may need to do an FBT calculation for each vehicle provided.

Without one, for the founder above, they have to include $29,057 ($15,400 * 1.8868) in their payment summary.

Does this matter? Potentially yes, if you:

1) Have a study loan (HELP, VETSL, SFSS)

2) Don’t have private health insurance (Medicare Levy surcharge)

3) Are on the cusp of that arbitrary $250k threshold (Div 293)

4) Pay child support

5) Insert the remaining 12 or so scenarios (you get the drift - it matters in a lot of scenarios).

This brings us to a pretty interesting scenario – especially where the employee is not the founder of the business:

1) The business doesn’t care whether there’s private use (because it’s FBT exempt anyway); and

2) Employee would naturally like their RFBA to be as low as possible.

This may lead to a scenario where the employee asks to keep a logbook, for the employer to then calculate a more tax-efficient FBT taxable value, which then lands on the employee’s payment summary, meaning less HECS/MLS/other stuff.

How good are mismatches in incentives!

For us accountants?

It probably just means we have the same amount of work to do…

Watch this space – and if you have any questions, please reach out.

AKL

* Please note

All tax excitement levels are capped at a certain ceiling. For example, 10/10 tax excitement doesn’t beat 4/10 real world excitement. Comparable real world excitement events include:

- getting the choice parking spot outside your apartment (5/10)

- birth of child (9/10)

- a 7th chicken nugget in a 6-pack at McDonalds (∞/10)

Have RSUs? Don’t lodge your own tax return!

Valuations, Teal (again) and Running the Gauntlet