the idea of transitioning to electric vehicles has recently become more popular. with the numerous incentives and benefits, it’s easy to see why. one of these incentives is the novated lease fbt exemption for electric vehicles. in this article, we will discuss the benefits of the novated lease fbt exemption for electric vehicles, how it works, how to take advantage of it, and the pros and cons of the novated lease fbt exemption.ely.
introduction to novated lease fbt exemption
novated leases are essentially a type of salary packaging that allows employees to lease a vehicle via their employer and have the payments deducted from their pre-tax salary. under the fringe benefits tax (fbt) legislation, any motor vehicle that is provided to an employee for their use is subject to fbt. however, the australian taxation office (ato) has introduced an exemption for electric vehicles that are leased under a novated lease arrangement. this exemption allows for the fbt to be eliminated from eligible zero and low emission vehicles that are leased under a novated lease arrangement.
benefits of the novated lease fbt exemption for electric vehicles
the novated lease fbt exemption provides several benefits for businesses and employees who choose to lease an electric vehicle. the most significant benefit is the lower tax burden. the fbt exemption applies to eligible electric vehicles that are leased under a novated lease arrangement, allowing businesses and employees to save money on their taxes.
in addition to the fbt and income tax savings, the novated lease also provides a number of other benefits such as:
- it can help attract and retain top talent,
- as well as provide an incentive for employees to use more environmentally friendly vehicles.
- discounted running costs
- gst savings on the purchase price and running costs of the vehicle
the novated lease fbt exemption also provides a number of environmental benefits. by encouraging businesses and employees to lease electric vehicles, the ato is helping to reduce emissions and promote the use of more environmentally friendly modes of transportation. this is especially important in light of the growing concern about climate change and other environmental issues.
how does the novated lease fbt exemption for electric vehicles work?
the novated lease fbt exemption allows businesses and employees to eliminate the fbt on eligible electric vehicles that are leased under a novated lease arrangement. to take advantage of the exemption, businesses must first enter into a novated lease arrangement with their employees. this involves the employee entering into a lease agreement with the employer, and the employee contributing to the cost of the lease from their salary packaging.
how to take advantage of the novated lease fbt exemption for eligible electric vehicles
eligibility
an electric car that is zero or low emissions, has never had luxury car tax (lct) paid on it, and was first held and used on or after 1 july 2022 can be provided to current employees without having to pay fbt.
zero or low emissions vehicle
for a vehicle to be classified as a zero or low emissions vehicle, two conditions must be met:
- it must be a:
- battery electric vehicle,
- a hydrogen fuel cell electric vehicle, or
- a plug-in hybrid electric vehicle (phev)
- it must be a car designed to carry no more than one ton and fewer than nine people (including the driver).
starting from april 1, 2025, plug-in hybrid electric vehicles will no longer be regarded as zero or low emissions vehicles under tax law. until then these vehicles are available under the fbt exemption and can run their term after the april 1, 2025, if still in a novated lease finance agreement. after this date it is important to note any changes to the agreement will cease the fbt exemption.
motorbikes and scooters would not be considered cars for tax purposes, even if they are electric.
‘held and used’ the electric car
to be eligible for the tax exemption, an electric car must be owned, leased, or made accessible for the first time on or after july 1, 2022
determining if the car was subject to lct
to qualify for the tax exemption, the price of the electric vehicle must be below the lct limit when it is initially sold in a retail sale, as well as in any future sales. lct is payable for two years after the original retail sale, this means that profit above the original retail sale when resold above the lct limit will then attract lct.
when purchasing a second-hand vehicle it is imperative to determine whether the vehicle had any lct paid, very important to receive a copy of the original tax invoice.
associated car expenses or expenses related to cars
the following costs related to cars are excluded from fbt if they are provided in relation to an allowable electric vehicle:
- registration fees
- insurance
- maintenance and repairs
- electricity to charge and power electric cars
what types of electric vehicles qualify for a novated lease fbt exemption?
list of current vehicles by price link to car page
example: https://zecar.com/electric-vehicles
pros and cons of the novated lease fbt exemption for electric vehicles
as with any tax incentive, there are some pros and cons to the novated lease fbt exemption. the primary benefit is the reduced tax burden. by taking advantage of the exemption, businesses and employees can save money on their taxes. this can be particularly beneficial for businesses that are looking to reduce their overall tax burden.
| pros | cons |
|---|---|
| all vehicle deductions made pre-tax | not all employers offer novated leasing |
| huge income tax savings | limited ev infrastructure |
| no fbt | limited range |
| gst savings on the purchase price and running costs | less choice of available cars |
| saving the planet from vehicle emissions | price |
| can refuel/charge at home | may be a limited time offer by the government |
| extra storage in the vehicle |
conclusion
the novated lease fbt exemption for electric vehicles provides numerous benefits for businesses and employees who choose to lease an electric vehicle. the most significant benefit is the reduced tax burden, which can be particularly beneficial for businesses. additionally, the exemption provides a number of other benefits, including environmental benefits and tax-free incentives for employees.
taking advantage of the novated lease fbt exemption for those people interested in an electric vehicle will provide the cheapest and most tax effective way possible.
