Tax incentives on electric vehicles

Are you thinking about buying a Tesla as your next toy? Are you enticed by the serene comfort of electric vehicles (EVs)? Or perhaps you’re exploring the idea of long-term saving from electric vehicles, despite the higher initial cost.

With Australia pushing towards a greener future, tax incentives for electric vehicles, both on a national and a state level, might be something for you to make the most out of.

You’ll find details on the ATO website and we’ve provided some key insights here for quick reference:

1. The 5% import tax and Fringe Benefits Tax (FBT) no longer apply to zero and low emission vehicles (up to the luxury car tax threshold) first used on or after 1 July 2022. This also applies to EVs acquired via salary packaging arrangements.
2. The exemption is available for eligible electric cars with a purchase price below the luxury car tax (LCT) threshold, namely $89,332 for fuel-efficient vehicles in 2023-24 financial year.
3. The provision of electric vehicles benefit is also exempt from FBT, including registration, insurance, repairs or maintenance and fuel (or electricity to charge and run electric cars), according to the ATO.
4. For an EV valued at approximately $50,000, the savings of the FBT exemption can be close to $9,800 for the employer, which in turn means savings for the employee, as well as a benefit up to $4,700 for the employee using a salary sacrificing arrangement.
5. Please note that in addition to the tax incentives on a national scale, each state offers different incentive schemes for EVs. For instance, Tasmania provided free stamp duty for eligible EVs from 1 July 2021 to 30 June 2023, whilst the ACT offers free vehicle registration for two years for eligible EVs purchased before 30 June 2024. It’s important to look for further information on the respective State Government websites and also chat with your accountant.

How does this look in practice?

Take my mate Tom as an example. Tom recently opted for a salary sacrifice arrangement to purchase an MG4 electric hatchback, which is an entry-level EV available in Australia. This arrangement enables a pre-tax deduction, therefore reducing the tax payable on his salary. Additionally, the vehicle is exempt from FBT, as it is qualified as a Zero Low Emission Vehicle (ZLEV).

In addition, Tom lives in Melbourne and the Victorian government sweetens the deal with a $100 p.a. discount on EV registration. These tax incentives as well as the tax planning have alleviated the pressure of higher upfront cost for Tom. This provides the added bonus that over the long run, Tom will reap the benefits of lower operating expenses of EV compared to a traditionally fuelled vehicle.

In conclusion

For individuals, salary sacrifice or a novated lease arrangement with their employer can definitely be a useful tax planning strategy, as it comes down to whether the income tax savings outweigh the estimated FBT payable and associated fees. Subsequently, the FBT exemption for EVs can harvest substantial tax savings.

As for companies, they may consider purchasing EVs for employee use, without attracting FBT. Similar to individual circumstances, this could result in a significant amount of savings per year.

If you have any questions or require further clarification on the tax implications of electric vehicles for companies or individuals, please contact your WLF advisor.

The information provided is of a general nature only, in preparing it we did not take into account your investment objectives, financial situation or particular needs.