A change to fringe benefits tax (FBT) rules from July 1 this year has made electric vehicles more appealing for novated leasing. Employees can salary package an EV and save thousands of dollars each year.
Eligible EVs and plug-in hybrids costing less than the luxury car tax threshold of $84,916 are now FBT-exempt. It opens up the option of salary packaging an EV to a broader pool of people. For more information about the novated lease fringe benefits tax electric vehicle, click here.
Benefits
A novated lease allows you to liberate pre-tax income and can help you save thousands of dollars on your new electric vehicle. It is also a great way to reduce your impact on the environment. However, it is essential to understand the tax implications of a novated lease.
The ATO has recently introduced legislation to remove FBT for eligible electric and plug-in hybrid vehicles provided by an employer under a salary packaging arrangement. It is intended to encourage more people to use these environmentally friendly vehicles.
Employees who receive a car as part of their salary package must work out the notional taxable value of the vehicle using either the statutory formula or the operating cost method. This amount will then be reported on their annual income statement. It can affect their eligibility for government benefits and may impact other deductions such as HELP/HECS repayments or child support. Speaking with a tax professional before obtaining an electric car under a novated lease is essential to avoid these issues.
Eligibility
The tax man isn’t on everyone’s Christmas card list, but he might cut this year if he helps you save thousands in taxes yearly. A new law passed in late 2022 eliminates Fringe Benefits Tax (FBT) on eligible electric vehicles provided to current employees through novated leases. For more information about the novated lease fringe benefits tax electric vehicle, click here.
FBT is typically calculated based on a percentage of the vehicle purchase price or a calculation of operating costs, including fuel, servicing, registration, insurance, and other ongoing expenses. Employees who salary package their cars can offset the taxable value of these contributions with pre-tax wages, which lowers their overall FBT liability. That is why novated leasing is an ideal way to fund a new electric car.
Taxes
Traditionally, providing employees with a car via a salary packaging arrangement incurs Fringe Benefits Tax (FBT). It is based on the notional value of the vehicle for private use and may also consider employee contributions towards running costs and a rough estimate of how much time is spent using the car for personal purposes.
The new legislation will exempt EVs and PHEVs from FBT, where they are provided through a novated lease, with the car payments being deducted from pre-tax income. This exemption is expected to make EVs more affordable for Australian workers.
Currently, a car provided by an employer to an employee under a novated lease can be subject to FBT of up to 49 per cent. It is based on the notional taxable value of the vehicle for private use, which is calculated using a formula or cost basis. It may also include additional expenses, such as home charging equipment. However, the exemption for EVs and PHEVs is expected to eliminate this uncertainty. For more information about the novated lease fringe benefits tax electric vehicle, click here.
Costs
The tax man may not be on everyone’s Christmas card list, but he is probably a good guy to have around when he can shave thousands of dollars off your next tax bill. That happened when the Federal government passed legislation to remove the Fringe Benefits Tax (FBT) on eligible electric, plug-in hybrid and hydrogen fuel cell cars provided through novated leases.
According to the major fleet management company SG Fleet, individuals whose salaries sacrifice an eligible EV or PHEV through a novated lease can expect to save around $4,700 each year in calculated FBT payments.