FBT and electric vehicles – how does it work?

At our recent TaxEd FBT Roadshow, the treatment of electric vehicles was regularly raised. In particular people wanted to confirm how electric cars are treated for FBT purposes.

In short, for now at least, electric cars are treated as per others cars for FBT purposes.

The FBT definition or a ‘car’ is taken from section 995 of the Income Tax Assessment Act 1997 being a motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers. A ‘motor vehicle’ is defined in section 995-1 as any ‘motor-powered road vehicle’ (including a 4 wheel drive vehicle).

An electric car is a motor-powered road vehicle albeit with an electric motor and although quite different to a traditional internal combustion engine nevertheless a motor-powered road vehicle.

On this basis an electric car may be treated for FBT purposes under the statutory method or operating costs methods in the normal manner.

There are some practical matters that should be considered though:

•  any GST credit due on the purchase of a car is limited to the prevailing ‘car limit’ and an electric car  and a conventional car  are both subject to the same car limit rules/thresholds (the car limit in 2021/22 is $60,773;
• under the rules relating to Luxury Car Tax (LCT), ‘fuel efficient cars’ are entitled to a higher threshold than conventional cars when determining whether LCT applies. A car is a ‘fuel efficient car’ where it has a fuel consumption that does not exceed seven litres per 100 kilometres as a combined rating under the vehicle standards in force under section 7 of the Motor Vehicle Standards Act 1989. The LCT threshold for fuel efficient cars in 2021/22 is %79,659 vis $69,152 for a conventional car (NB the definition of a car for LCT purposes includes a car designed to carry a load of less than two tonnes);
• generally speaking electric cars will be cheaper to operate/maintain than conventional cars however will be likely to cost more to purchase than a comparable vehicle (ignoring the engine type); and
• certain imposts on electric car usage, for example State imposed road user charges, will need to be considered as to whether they form part of operating cost calculations or otherwise give rise to a fringe benefit where paid/reimbursed by an employer.

It may eventuate that Government policy initiatives will dictate that electric cars do receive more favourable FBT treatment than conventional cars in order to stimulate take-up. For example, the Labor Party has announced that electric cars will not be subject to FBT should it win the May 2022 election -see ‘Electric Car Discount‘ announcement. The precise scope of the exemption is yet to be confirmed.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.