What might the Federal Government’s proposed electric car discounts mean for taxpayers?
Under the current statutory formula for valuing car fringe benefits, electric cars are arguably at a disadvantage compared to fossil fuel-consuming cars, but this may soon change.
One of the new Federal Government’s policies, announced as part of its election platform, is to introduce import tariff and FBT concessions for certain electric vehicles from 1 July 2022.
Such vehicles would be exempt from:
• import tariffs – a 5% tax on some imported electric cars; and
• FBT – this is imposed on electric cars that are provided through work for private use.
These exemptions would apply to vehicles valued below the threshold for the luxury car tax for low-emission vehicles, which for the 2021–2022 financial year is $79,659.
The taxable value arrived at using the statutory formula for valuing car fringe benefits covers a variety of expenses associated with the ability to use the car, such as leasing costs, fuel, maintenance and insurance.
However, the statutory formula only uses 20% of the cost price of the car as the principal component of the formula. Running costs such as fuel and maintenance are not part of the calculation at all.
Therefore, a car with a relatively high purchase cost to running cost ratio (as would typically be the case with an electric car) generally incurs a higher FBT burden for every dollar the employer spends on the car.
The Federal Government’s proposal to treat a car fringe benefit arising from the availability of an electric car for private use as FBT-exempt will therefore tilt the balance very much back in favour of electric cars.
An employee on a salary of $150,000 who salary-packages a $60,000 electric car with annual running costs (including lease payments) of $17,000 net of GST could expect to be around $4,500 better off annually after tax, due to the change in FBT treatment.
Import tariff exemption
The exemption from the import tariff should make certain electric models cheaper for Australian consumers and businesses.
Several models are already exempt from import tariffs because they are manufactured in countries with which Australia has a free trade agreement covering electric cars.
The Government has not yet confirmed when the next Parliamentary sittings will take place, and so a start date of 1 July 2022 may require an element of retrospective legislation.
The Government has indicated that the electric car discount policy would be reviewed after three years, taking account of developments in the adoption of electric cars by that time. However, as we have seen with the low- and middle-income tax offset, it can be politically challenging to remove tax concessions even when they have been introduced as temporary. Watch this space!
If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 4 Bowen Street Toowoomba.