Elizabeth Lucas, Partner of Employment Solutions at Grant Thornton, shares her insight on the complex landscape of electric vehicle taxation, offering a comprehensive breakdown of current regulations, potential pitfalls, and practical strategies for individuals and employers alike.
We are gradually seeing more and more EVs on the road. But how are we meant to account for them from a tax perspective?
The ATO has recently released both a Fact Sheet and a Draft Practical Compliance Guideline, PCG 2023/D1 to assist. There is some helpful clarification provided, but a few other areas remain ambiguous. We are hopeful of the final guidance being published soon
Here is our take on the current state of play.
Individuals using their own cars for business purposes
Deductions for the business use of cars can be claimed under a couple of different methods, being:
- Cents per kilometre – currently 85 c/km, up to 5,000 business kms, which covers all running costs, and only records of business travel are required; and
- Log book – requires actual records of expenditure and a log book (maintained for 12 weeks every 5 years) to support the business use percentage.
The main issue that arises for EVs in this regard, is how to determine the amount of electricity costs incurred when using the log book method.
Calculating electricity expenses
The Draft PCG provides an option to use a rate of 4.20 cents per km to estimate electricity expenses, for fully electric vehicles only (not hybrids) provided:
- The individual/employee charges their car at home at least some of the time, and the cost cannot practically be separated from the cost other household electricity usage (i.e. no separate meter);
- The individual/employee keeps records of home electricity costs incurred; and
- The calculation is based on total kilometres travelled for the year; and
- No other costs for electricity are included (such as any costs incurred at a commercial charging station).
The rate applies regardless of the mix of home charging, charging at work, and paying for charging elsewhere. The rate also applies regardless of how much home charging may have related to electricity generated from solar panels and how much related to electricity purchased from the grid – although some cost must have been incurred.
An estimate of kilometres travelled in 2022/23 may be used if odometer records were not kept at 1 April 2022. This should be based on service records or other available information and is a transitional rule that is not available in subsequent years.
Adopting this methodology is optional, and a year by year choice. But with the only alternative being to retain actual records, it is probably the only practical option for EVs.
Employers providing fringe benefits to employees
Employers need to determine the cost of fuel, including electricity, when providing benefits to employees where:
- The operating cost method is being utilised for a car benefit or the use of a vehicle that constitutes a residual benefit, and the electricity costs form part of the running costs; or
- The employee has incurred electricity expenses as recipients’ payments towards a car or residual benefit; or
- The employer is reimbursing electricity costs as an expense payment benefit.
The Draft PCG applies equally in this situation, as detailed above.
Other clarified fringe benefits tax (FBT) issues
Home charging equipment
Home charging equipment is considered a separate benefit, not part of a car benefit and therefore subject to FBT if paid for by an employer. If installation costs have been bundled into a lease agreement, the ATO considers they need to be pulled out and treated separately for FBT purposes.
Reportable fringe benefits
Despite the FBT exemption for qualifying EVs, taxable value calculations are still required, in order to determine the reportable fringe benefits amount (RFBA) to be reported through single touch payroll for each employee. To calculate the RFBA, you can use either the statutory formula method, or the operating cost method, as usual. Pooled or shared cars, including EVs, are not reportable.
Plug-in hybrid sunset
Plug-in hybrid electric cars are only exempt from FBT until 1 April 2025, although if there is an existing financially binding commitment to provide the use of a car at that time, it can continue to be treated as FBT exempt until the end of that commitment. A lease is considered such a commitment, and refinancing a lease is considered a new commitment.
First held and used requirement
FBT exemption only applies if the first time the car is both held and used is on 1 July 2022 or later. Use, for this purpose, includes any use, including use that occurred overseas prior to importation. Some uncertainty regarding use by car dealers will hopefully be clarified in the final PCG.
Road user charges
Road user charges (RUC) for EVs are considered by the ATO to be part of registration costs and therefore part of the car expenses that are exempt from FBT. Whilst we are not so sure about the validity of this position, we are happy to accept it!
Accessories
New batteries that effectively maintain a car’s efficiency or function, or only make an incremental difference, can be treated as repairs and not subject to FBT. New batteries that create an enhancement, or capital improvement to the car (such as providing significantly more power and energy storage), should be treated as a capital cost and will add to the cost price of the car.
GPS subscriptions are not considered to be car running expenses and therefore are not exempt from FBT. Installing a GPS in the car will be considered a capital expense, and either a business accessory, or non-business accessory, depending on whether it is needed in the employee’s work. Non-business accessories add to the cost price of the car for FBT purposes.
A charging cord is not considered part of the car and is considered a separate benefit if provided by the employer.
NFP concessional caps
Despite being reportable benefits, FBT exempt EVs do not ‘use up’ any of the annual concessional cap for an FBT exempt or rebatable employer.
What is still uncertain?
FBT exemption for second hand cars
When acquiring a second hand vehicle, employers need to consider whether the vehicle has ever been subject to luxury car tax (LCT). If no sale history information is available, the employer needs to make a best guess, using mechanisms such as an internet search on the make and model of the car to check its initial recommended retail price, so as to then determine whether LCT was likely to have applied.
There is no guidance on how to determine when a second hand car was first used. There is also no obligation for the vendor of a car to pass on this information. Particularly for cars that were new in 2022, and particularly where the car may have been used overseas prior to importation, this may become a bit of a nightmare!
Stay tuned for updates to the PCG!
Elizabeth has extensive experience in providing fringe benefits tax, salary packaging and employment tax advice to not-for-profit bodies, corporate clients and Government organisations. She is passionate about helping her clients to achieve optimal outcomes for both the organisation and its employees. Elizabeth is a significant contributor to her profession and the not-for-profit sector in particular. She has chaired the Tax Institute’s FBT Subcommittee, has served on the ATO’s various FBT stakeholder groups and consultations for many years, and continues to do so, and was a member of the Not-for-profit Sector Tax Concession Working Group reporting to the Federal Government. Connect with Elizabeth via LinkedIn
