Electric vehicles could be almost $10,000 cheaper following passage of the government’s Electric Car Discount bill late last year.
Under the legislation, which is designed to fast-track uptake and subsequently increase the amount of second-hand EVs in the market, businesses and employees will be exempt from Fringe Benefits Tax (FBT) on eligible company fleet and novated lease purchases.
Fleet and lease sales constitute a significant portion of the overall new car market. Cars acquired through salary-sacrifice arrangements or corporate fleets are often sold as relatively new, second-hand vehicles after three or four years. This implies that in the next few years, there may be a substantial number of second-hand EVs, many of which may still be under warranty, available for purchase.
The benefit applies to vehicles under the $84,916 Luxury Car Tax threshold, meaning the vast majority of EVs imported to Australia.
According to computations made by BDO Australia, if a company acquires an electric vehicle worth $48,000 for an employee, they would save about $9385 annually in Fringe Benefits Tax (FBT).
Workers who opt for a novated lease to reduce their taxable income by purchasing a car may be pleasantly surprised, as the updated regulations may make buying an electric vehicle more advantageous than purchasing a vehicle that only runs on fossil fuels.
In a typical novated lease agreement, a portion of the lease payment is made using pre-tax income, while the remaining amount is paid using post-tax income. This is done to reduce the Fringe Benefits Tax (FBT) liability to zero. However, with the Electric Car Discount program eliminating the FBT component, an employee may now make the entire contribution from their pre-tax income, resulting in significant tax savings. BDO Australia's computations indicate that an employee earning $150,000 per year and salary sacrificing $25,000 annually in lease payments and running expenses could save as much as $9250 compared to an employee who pays for an EV using after-tax income.
Novated leasing has changed the game for the average taxpaying punter wanting something nice in the driveway, and the flexibility to upgrade at the end of the lease term.
Should you wish to chat about taking advantage of the benefits offered by the Electric Car discount program, please do not hesitate in contacting VI Partners for a further discussion.