We are considering the option of providing employees with Electric Vehicles for personal and business use. These vehicles will meet the criteria for the FBT exemption. Employees will be expected to charge their allocated vehicle at home and will be reimbursed at a specified rate per kilometre travelled.
We are aware the current official ATO rate is 4.2 cents per kilometre travelled. However, we are proposing to reimburse the employees at the rate of 5.6 cents per kilometre travelled which considers other costs built into the rate. These additional costs include the price of electricity today, loss of percentage electricity from converting AC to DC and using the average fuel economy for electric vehicles.
If we opt for this alternative rate, are there any FBT implications?
For FBT reporting purposes, we propose to calculate the notional taxable value using the logbook method.
It is accepted the electricity costs incurred in charging an electric car are car expenses in the form of fuel. Where the provision of the electric vehicles is by way of a car fringe benefit arrangement, reimbursement of electricity costs incurred by an employee in charging the car at their private residence (or elsewhere) would typically be an exempt fringe benefit pursuant to section 53 of the FBT Act.
The problem of charging at home is the ability to identify how much of the household electricity bill relates to the charging of the vehicle as opposed to the remainder of the household electric powered items.
To assist with this conundrum, the ATO released Practical Compliance Guideline – PCG 2024/2 – Electric vehicle home charging rate – calculating electricity costs when a vehicle is charged at an employee’s or individual’s home (PCG 2024/2).
PCG 2024/2 provides employers with the option to use a “shortcut” 4.2 cents-per-kilometre method rate for valuing the cost of electricity when an electric vehicle is charged at an employee’s or individual’s home.
This rate is based on the state and territory new motor vehicle registrations data (2014–2020), electrical consumption rates (watt hours per km) from the Electric Vehicle Database and Green Vehicle Guide, and the Australian Energy Market Commission state and territory electricity prices to derive the long-term population-weighted national average electricity cost.
As with all PCG’s, employers have the choice on whether to rely on the guideline or not. It is not compulsory. However, if the PCG rate is not used, then it is expected that employers need to determine the cost of the electricity by determining its actual cost.
So, if you use the 4.2c/km option there should be no FBT consequences as the Commissioner will not devote compliance resources to review your electricity costs. This rate would also be accepted in determining the notional taxable value using the operating cost method.
However, if you choose to the 5.6c/km rate, you will not have the protection of the PCG and the ATO would expect to see a detailed calculation outlining that the rate chosen accurately effects actual electricity used. There might be the risk the additional 1.4 additional cents is not viewed as a car expense item thereby losing the exemption under section 53 of the FBT Act
We would expect that most employers are likely to adopt the PCG as, absent the PCG methodology, there is likely no accurate way to calculate the running costs relating to electricity charging, nor the recipient’s payment (if utilised to reduce a fringe benefit’s taxable value).
For this reason, we would recommend you start with the 4.2c/km rate and perhaps consider submitting a private ruling to the ATO outlining your 5.6c/km rate to see whether the ATO would favourably rule it is an accurate alternative to their PCG option.
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