The rules on Fringe Benefits Tax (FBT) have recently changed for electric vehicles and more people are now considering a novated lease to take advantage of the savings.
When the Federal Labour Government was elected last year, they introduced the Electric Car Discount Bill which made electric and plug-in electric vehicles exempt from FBT if the purchase price was under $84,916 (this amount changes each financial year so check the ATO website for the current rate).
You can now lease a $70,000 EV on the same monthly rental as a $50,000 petrol or diesel car because there is no FBT to pay on the EV or PHEV.
It’s a significant saving designed to get more business fleets into EVs and it also applies to novated leases because of the unique tri-party arrangement that allows employees to pay for a vehicle from pre-tax salary.
How much can you save?
On a $50,000 petrol/diesel vehicle, the annual FBT is approximately $10,000 which is added to your monthly novated lease payments. With the FBT Exemption, the FBT on a $70,000 EV or PHEV is $0.
Without the additional cost of FBT, employees can purchase an electric vehicle with a higher purchase price and the monthly rental will be similar to a petrol or diesel car that costs a lot less.
The savings don’t just come from zero FBT; you’ll never need to worry about rising prices at the petrol pump or regular oil changes. And with the benefit of regenerative braking, the brakes pads take forever to wear out.
One more saving with a novated lease comes from the way GST is handled. The financier of the novated lease claims the GST input tax credit which is like you getting a 10 percent discount on the purchase price and running costs.
What about a home charger?
It’s recommended that you install an 7kW EV charger at home but it’s not essential. Many EV owners charge their car from a normal power point without any issues.
Other EV owners don’t have off-street parking or a power point. They are able charge using the rapidly growing network of public charging stations. Once you’ve had the electric car for a few weeks you’ll develop a routine of charging while shopping, or at work.
The FBT Exemption doesn’t cover the installation of home chargers, so if you decide to install one, pay for it separately to avoid the added complication of FBT on a small amount.
Although the private use of an eligible electric car is exempt from FBT, the value of the benefit is still a reportable fringe benefit.
If the total value of reportable fringe benefits provided to an employee during the FBT year is more than $2,000, the employer must report the benefits on the employee’s income statement or payment summary.
This amount reported is called the reportable fringe benefits amount (RFBA). The RFBA is the ‘grossed-up’ amount of the benefits value to reflect the pre-tax income the employee would have had to earn, at the highest marginal tax rate (plus the Medicare levy), to buy the benefits themselves.
Although the amount of RFBA is not added to an employee’s taxable income for determining their income tax or Medicare Levy liabilities, it is used by the ATO and Services Australia to determine certain obligations. A full list of the consequences of having a reportable fringe benefits amount is on the ATO website.
If you’re interested in learning more about novated leasing and how it could work for you, reach out to the team at Novated Lease Australia.