Last year it was announced that eligible electronic vehicles (EVs), plug-in hybrids and associated expenses provided under employer salary packaging arrangements are exempt from fringe benefits tax (FBT). This allows employees and employers to potentially save thousands of dollars annually.
According to the National Automotive Leasing and Salary Packaging Association, this exemption has seen a dramatic increase in the number of EVs and plug-in hybrids being included in novated leases.
What are the possible tax savings?
Offering employees the option to package an electric vehicle (EV) or plug-in hybrid vehicle as part of their salary package can result in significant benefits. For instance, consider a scenario where an employee purchases a vehicle for $60,000. If this vehicle is a traditional combustion engine car, they would typically pay around $12,000 in Fringe Benefits Tax (FBT) per year. However, if they choose an electric car, they wouldn’t pay any FBT. This means that by opting for an electric vehicle, employees can enjoy substantial tax savings, making it a financially attractive choice.
How the FBT exemption and salary packaging work with novated leasing
Novated leases are three-way contractual agreements between an employee, their employer and a salary packaging finance company. Lease terms are typically three to five years. At the end of the lease, the employee has three options:
- continue with the lease arrangement
- take out a new lease on a new vehicle
- pay the residual value and take ownership of the vehicle from the salary packaging finance company.
The FBT exemption for EVs and plug-in hybrids means that novated lease payments can be fully deducted from an employee’s pre-tax income, significantly reducing their tax obligation. Previously, FBT had made the salary packaging of more expensive vehicles like EVs and plug-in hybrids cost-prohibitive.
However, there are specific eligibility requirements for vehicles to qualify for the FBT exemption, and changes will come into effect for new plug-in hybrids purchased or leased from 1 April 2025 onwards.
Current eligibility requirements for FBT-exemptions in salary packaging
To qualify for an FBT exemption under a salary packaging arrangement, EVs and plug-in hybrids must meet all of the following requirements:
- The vehicle’s purchase price must be less than $89,332.
- It must be a zero or low emission vehicle.
- The vehicle must have been first owned/leased and used after 1 July 2022.
- It must currently be used by the salary packaging employee or their family members or other associates.
- The vehicle must not have been liable for luxury car tax when it was initially sold or imported.
An increasing number of cheaper EV models are now being made by car manufacturers that fall under the $89,332 FBT cap. More than 60 models currently qualify, and the number is regularly increasing. Popular EV models in novated lease salary packaging arrangements include the Tesla Model 3, Tesla Model Y and the BYD Atto 3.
Plug-in hybrid changes after 1 April 2025
New plug-in hybrids will lose their FBT exemption status from 1 April 2025. Plug-in vehicles purchased or leased after that date will no longer be considered zero or low emissions vehicles. They will be subject to FBT like vehicles with traditional combustion engines that require fossil fuels. However, EVs will continue to remain FBT exempt.
Plug-in vehicles purchased or leased prior to 1 April 2025 will retain their FBT exemption status while they remain in an employee’s salary packaging arrangement. This effectively means that they will retain their exemption status until the end of the novated lease term. However, extending the lease term at the end of the lease will not extend the FBT exemption, because it is an optional extension.
Find out your possible annual savings
For more information or assistance in calculating potential tax savings for your business or employees, please contact your accountant. If you would like to discuss a novated lease with our lending advisor, please contact Brett on 0409 402 086.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation.
