Navigating the complexities of electric vehicle management for clients can pose challenges. It entails assisting clients in comprehending the nuances of the new FBT exemption, including its limitations, and ensuring accurate deduction claims. This task becomes particularly crucial as the operational costs of electric vehicles often prove significantly lower than those of conventional vehicles. Curious to learn more? Explore our top electric vehicle-related enquiries below:
- What is the process for claiming electricity costs on an electric vehicle for a sole trader?
- Should a nil FBT return be lodged for an electric vehicle, and is it reportable? What about depreciation and GST?
- Is a logbook required for an electric vehicle that is exempt from FBT?
- How can GST credits and deductions be calculated for an electric vehicle exempt from FBT and used for private purposes?
- Does the motor vehicle cost limit apply to EVs for GST and depreciation purposes?
- Is the depreciation cost base limit applicable to a Tesla?
- Can the new FBT exemption be applied if an employee purchases an EV and enters into a salary sacrifice agreement for the running costs?
- How should employee contributions towards an EV exempt from FBT be handled?
What is the process for claiming electricity costs on an EV for a sole trader?
Scenario: I am assisting a sole trader client who owns an electric vehicle and intends to utilize the logbook method to claim running costs. While we comprehend that they can claim the business portion of expenses like insurance, registration, and repairs, we face a challenge with the absence of fuel expenses for this electric vehicle. How can we proceed with claiming electricity costs for this car?
Answer: Finding comprehensive and readily available information on this particular topic proves challenging. However, the private ruling provided in the link below implies that expenses related to charging an electric vehicle may be eligible for deduction if the vehicle is utilized for generating income. Unfortunately, the ruling does not offer explicit instructions on calculating the deduction.
https://www.ato.gov.au/law/view/print?DocID=EV%2F1051677033494&PiT=99991231235958
While I do not possess specific knowledge regarding guidance specifically addressing electric cars, the Australian Taxation Office (ATO) does offer guidance on calculating electricity costs within the context of home offices. It is reasonable to assume that a similar approach could be applied to calculating electricity costs for a car. Essentially, the ATO advises determining the following three factors to calculate the cost of the electricity consumed:
- Cost per unit of power used: This information can be found on electricity bills.
- Average units used per hour: This refers to the power consumption per kilowatt-hour for the specific item.
- Total hours the item is used for income-producing purposes.
By assessing these factors, one can estimate the cost of the electricity consumed.
Actual cost method | Australian Taxation Office (ato.gov.au)
Should a nil FBT return be lodged for an electric vehicle, and is it reportable? What about depreciation and GST?
Scenario: I have a query regarding the FBT exemption for electric vehicles. If a company purchases an eligible electric vehicle for employee use, assuming no other fringe benefits are provided, do we need to submit a nil FBT return? Should we also record a portion of the reportable amount on the employee’s payslip each pay period? Furthermore, can the vehicle purchase be claimed as a deduction under temporary full expensing or small business depreciation? Can the GST on the purchase be included in the next activity statement?
Answer: If the employer has not made any FBT instalments during the relevant period and does not have an FBT liability (e.g., only providing exempt fringe benefits), there is generally no need to lodge an FBT return.
However, some commentators suggest that lodging an FBT return could be a strategy to limit the amendment period if the Australian Taxation Office (ATO) challenges the FBT treatment in the future.
Even if the electric car is exempt under the FBT electric car exemption, the grossed-up value should be reported on the employee’s payment summary, typically through Single Touch Payroll (STP). This applies if the taxable value of reportable fringe benefits, including the electric vehicle, provided to a specific employee exceeds $2,000 in an FBT year.
Additionally, it seems that the rules require calculating the grossed-up value as if the FBT exemption for electric vehicles did not apply or was not available. This is important to consider for FBT reporting purposes.
Regarding deductions, eligibility for temporary full expensing or small business depreciation would depend on the specific circumstances and applicable tax laws. It is advisable to consult with a tax professional to determine the deductibility of the vehicle purchase.
Regarding GST, if the business is registered for GST and the purchase of the electric vehicle is a taxable supply, the GST on the purchase can generally be included in the next activity statement as an input tax credit.
As tax laws and regulations are subject to change, it is recommended to seek professional advice and refer to the latest ATO guidelines for accurate and up-to-date information.
Depreciation –
If a company purchases a car and provides it to an employee for business purposes within the company, the company can potentially claim depreciation deductions on the vehicle, considering any applicable luxury car depreciation limits.
For small business entities with an aggregated turnover of less than $10 million who have opted for simplified depreciation rules, they may explore the possibility of immediate deductions under Division 328 for the vehicle’s purchase.
Alternatively, the temporary full expensing rules under Division 40 generally apply to depreciating assets, including cars, if the following conditions are met:
- The entity is engaged in a business as per general principles.
- The entity’s aggregated annual turnover is below $5 billion.
- The asset was acquired after 7:30 pm ACT time on 6 October 2020 and before 30 June 2023.
- The entity starts using the asset for a taxable purpose or has it installed and ready for use by 30 June 2023.
- The asset is located in Australia and predominantly used within Australia for carrying on the business.
Some restrictions apply to second-hand assets, but they do not usually apply to clients with an aggregated turnover of less than $50 million.
The above considerations generally hold regardless of whether the car qualifies for FBT exemption under the electric car rules. Additionally, the situation remains unchanged even if the employee uses the car partly for personal purposes.
It is advisable to consult a tax professional to determine the specific eligibility and implications for depreciation deductions and any potential restrictions based on individual circumstances and the latest tax regulations.
GST –
Similarly, if a company purchases a car and assigns it to an employee for business purposes within the company, the company should generally be eligible to claim GST credits on the vehicle’s purchase, taking into account the GST car limit where applicable.
Just as mentioned previously, the potential FBT exemption status of the car or the employee’s partial use of the vehicle for personal purposes should not affect the company’s ability to claim GST credits on the purchase.
Is a logbook required for an electric vehicle that is exempt from FBT?
Scenario: Do businesses need to maintain a logbook for an electric vehicle that is exempt from FBT (Fringe Benefits Tax)? What are the logbook requirements for reporting reportable fringe benefits?
Answer: Generally, there is no requirement to maintain a logbook to access the FBT exemption for electric vehicles. However, it is important to consider benefits qualifying for this specific exemption when calculating the reportable fringe benefits amount for employees.
Therefore, it may still be necessary to calculate a notional taxable value for the benefit using either the statutory formula or operating cost method.
If an employee expects to utilize the car for income-generating purposes, it might be advisable for them to maintain a logbook or similar documentation. This can be helpful in case the operating cost method results in a lower reportable amount. It is crucial to note that keeping a logbook is not mandatory, and the client has the option to use the statutory formula to determine the reportable amount.
How can GST credits and deductions be calculated for an electric vehicle exempt from FBT and used for private purposes?
Regarding the recently announced FBT exemption on electric vehicles, there are a few considerations to keep in mind. Please note that the discussion assumes the car is acquired by the employer and its usage is provided to an employee in their capacity as an employee.
Firstly, if the motor vehicle is used solely for private purposes, it is unlikely that the GST input credit can be claimed. This is because private use does not qualify as a creditable purpose for claiming GST credits.
Similarly, when it comes to deductions for running costs, they are generally subject to the business use percentage. If the vehicle is used for both business and private purposes, the deductions should be apportioned based on the proportion of business use.
It is important to seek specific guidance based on your individual circumstances to ensure compliance with applicable regulations and requirements.
Please note that the above information is a general overview, and professional advice should be sought to address your specific situation and any specific rulings or guidance issued by relevant authorities.
In relation to determining creditable purpose, paragraph 52 of GSTR 2001/3 on how GST applies to supplies of fringe benefits states:
52. An acquisition or importation you make to provide a fringe benefit in respect of employment in your enterprise is made in carrying on the enterprise and is not of a private or domestic nature for the purposes of section 11-15 and section 15-10. It is your purpose at the time of making the acquisition or importation that is relevant to whether the acquisition or importation is for a creditable purpose. For example, an acquisition made to provide a car for the private use of your employee is made for a creditable purpose.
GSTA TPP 052
The same principles that apply from an income tax standpoint should be considered when claiming depreciation deductions. The FBT exemption status of the vehicle should not significantly impact this aspect. It is important to note that the interaction between FBT exemptions and the denial of deductibility or GST credits may be more relevant for expenditures related to entertainment purposes.
Nevertheless, it is essential to be aware that the employer’s income tax deductions and GST credits related to the vehicle’s acquisition may be subject to limitations or caps imposed by the luxury car depreciation limit or GST limit, if applicable.
Does the motor vehicle cost limit apply to electric vehicles for GST and depreciation purposes?
Scenario: Could you please provide guidance on whether the motor vehicle cost limit is applicable to electric cars for GST and depreciation purposes?
Answer: If the vehicle meets the criteria of being classified as a car (i.e., designed to carry less than 1 tonne and fewer than 9 passengers) and is primarily intended for passenger transportation rather than the transportation of goods, then it is likely that the GST car limit and luxury car depreciation limit would apply.
It is important to note that the fact that a vehicle is electric-powered (i.e., equipped with an electric engine) does not automatically grant it an exemption from the GST car limit or luxury car depreciation limit.
For a specific example regarding the application of the luxury car depreciation limit, you can refer to PBR 1051316586383. However, it is essential to remember that you cannot solely rely on a Private Binding Ruling (PBR) issued to another taxpayer, as each case is assessed on its individual merits.
Is the depreciation cost base limit applicable to a Tesla?
Scenario: Hello. While it’s my understanding that Tesla electric vehicles are exempt from FBT, I would like to confirm if the depreciation cost base limit still applies to this purchase, just like it does for any other luxury vehicle, is that correct?
Answer: Changes to the concessional FBT treatment for electric cars can be found in Treasury Laws Amendment (Electric Car Discount) Bill 2022 (accessible through the link below) which received Royal Assent on 12 December 2022.
This measure solely affects the FBT treatment of vehicles and does not affect the car limit for depreciation or GST purposes.
It is important to highlight that the FBT exemption applies exclusively to specific vehicles that meet the criteria of being zero or low emission, and are not subject to luxury car tax (typically priced below $84,916 for fuel-efficient cars in the 2022-23 year). For detailed information on luxury car tax rates and thresholds, please refer to the ATO’s Luxury Car Tax rates and thresholds.
Car limit –
The car limit, which applies to both tax depreciation (under section 40-230) and GST purposes (under section 69-10 of the GST Act 1999), remains applicable when classifying an electric vehicle as a car. For the 2023 income year, the car limit for depreciation deductions is set at $64,741, which differs from the threshold used to determine the eligibility for the FBT exemption. Additionally, GST credits are limited to 1/11th of the car limit.
According to the definition in section 995-1 of the ITAA 1997, a car is described as a motor vehicle (excluding motorcycles or similar vehicles) designed to carry a load of less than 1 tonne and fewer than 9 passengers.
Depending on the timing of the car’s purchase by the employer for providing it to the employee as part of their overall compensation package, the temporary full expensing provisions may be applicable, allowing for an immediate deduction up to the car limit after claiming the input tax credits.
Can the new FBT exemption be applied if an employee purchases an electric vehicle and enters into a salary sacrifice agreement for the running costs?
If an employee and employer wish to utilize the electric vehicle FBT exemption through a salary packaging agreement, but the employee does not want to finance the vehicle or involve a third party, there may be limitations in how it can practically work.
One of the key conditions for the FBT electric car exemption is that the benefit must be a car fringe benefit. If the employee purchases the electric car in their own name, it may not meet the requirements for the FBT exemption.
In such a case, if the employee chooses to salary sacrifice the running costs of the car, it would likely create a separate fringe benefit that does not qualify for the FBT electric car exemption.
The concept of salary sacrificing depreciation is not clear, and if the employer is essentially reimbursing the vehicle’s cost, it may be considered an expense payment fringe benefit that is not eligible for the FBT electric car exemption.
However, the situation could be different if the employer acquires the vehicle and provides it to the employee in their capacity as an employee. Additionally, if a novated lease is entered into with the involvement of the employee, employer, and a finance company under an arm’s length arrangement, the FBT electric car exemption may be applicable.
Based on the provided information, it seems that the intended approach differs from these scenarios.
How should employee contributions towards an EV exempt from FBT be handled?
I am seeking guidance on the treatment of employee contributions for an electric vehicle that qualifies for the recently legislated FBT exemption.
I have a client who is a director of a company and receives dividends instead of a wage. The company currently has a petrol vehicle, and the director makes employee contributions using the statutory method to avoid FBT due to low business use.
If the company purchases an electric vehicle that meets all the conditions for the FBT exemption, how would the employee contribution work under the statutory method? Is the contribution still taxable in the company’s name, and does the director need to pay it to the company? Or is there another calculation method that should be used?
Based on the assumption that the vehicle is provided to the individual as an employee or director of the company, the following information should apply:
Under the rules, if the car is FBT exempt under the electric car exemption, you would calculate the grossed-up value as if the exemption did not apply (using either the statutory or operating cost method). This is necessary for determining the taxable value of the reportable fringe benefit amount for the employee.
It appears possible for the director to make post-tax employee contributions to reduce the reportable fringe benefit. However, it is my understanding that the employee contribution should still be assessable to the company. In essence, the director is providing consideration for the use of the company’s vehicle.
Employee contributions can be made through cash transfers. Alternatively, they can be made through a set-off arrangement if the company has a debt owed to the employee/director, and both parties agree to set off the employee contribution against this debt.
According to ATO guidance (MT 2050), the company must have an obligation to pay money to the employee, which could be an existing liability such as wages or dividends. Alternatively, the employer/company may agree to lend an amount to the employee.
If the company lends an additional amount to the individual, particularly if they are also a shareholder, it is necessary to consider the Division 7A implications of such a loan.