The Fringe Benefits Tax (FBT) in Australia

The Fringe Benefits Tax (FBT) exemption for electric vehicles (EVs) on novated leases in Australia is a tax incentive provided by the Australian government to encourage the adoption of electric and low-emission vehicles. This exemption is designed to make it more financially attractive for employees to include electric vehicles in their salary packaging arrangements. Here's a detailed explanation of how the FBT exemption for electric vehicles on novated leases works in Australia:

What is FBT?

FBT is a tax paid by employers on certain benefits they provide to their employees in addition to their regular salary or wages. Novated leases, which are a popular way for employees to acquire vehicles, are considered a type of fringe benefit. Therefore, FBT normally applies to these leases.

FBT Exemption for Electric Vehicles:

In a bid to promote the use of environmentally friendly vehicles, the Australian government introduced an FBT exemption for electric vehicles on novated leases.

Eligibility Criteria:

To qualify for the FBT exemption, the electric vehicle must meet specific criteria.

These criteria typically include:

The vehicle must be a pure electric vehicle (EV) or a plug-in hybrid electric vehicle (PHEV).

The value of the vehicle must be below the luxury car tax threshold. FY23/24 this threshold is $89,332. The threshold can change annually, so it's important to check the latest threshold for the specific financial year.

How the Exemption Works:

When an employee includes an eligible electric vehicle in their novated lease, they do not have to pay FBT on the benefit. This can result in significant tax savings for the Employee, as the entire payment for the vehicle and its running costs are deducted pre-tax.

Pre-Tax Salary Sacrifice:

Unlike many other novated leases, where the lease payments are made using an employee's post-tax income, the FBT exemption allows the entire lease payment for the electric vehicle to be made using the employee's pre-tax salary. This means that the lease payments are deducted from the employee's gross income before tax is calculated, leading to a lower overall tax liability.

Benefits for Employees:

For employees, the FBT exemption makes electric vehicles more affordable and financially attractive. It can reduce the overall cost of driving an electric vehicle and make it a more cost-effective option compared to traditional internal combustion engine vehicles.

Impact on EV Adoption:

The FBT exemption has had a positive impact on the adoption of electric vehicles in Australia. It encourages more employees to consider electric vehicles as a viable option for their company cars, resulting in increased EV sales and reduced greenhouse gas emissions.

Annual Changes:

It's important to note that the specific rules and thresholds related to FBT exemptions for electric vehicles can change from year to year. Therefore, individuals and employers considering novated leases for electric vehicles should stay informed about the current regulations and consult with a tax professional for the most up-to-date information.

In summary, the FBT exemption for electric vehicles on novated leases in Australia is a tax incentive designed to promote the adoption of electric and low-emission vehicles by making them more financially attractive for employees and employers. It encourages the use of electric vehicles as part of salary packaging arrangements, ultimately contributing to a cleaner and more sustainable transportation future.