Igniting Tax Advantages for Electric Vehicles with Fringe Benefit Tax Exemption

Written by Supervision Group

Supervision Group has a highly experienced team of professionals with one goal, to improve how you interact with your Business, Super, Personal Finances and Investments to grow your wealth. We know what it takes to grow and thrive in today’s fast-paced economy.

28 February 2024

The information provided discusses the recent federal support for initiatives to increase the adoption of plug-in hybrid and electric vehicles in Australia. This support has led to a surge in inquiries and the uptake of novated leasing for these vehicles, particularly due to the Fringe Benefit Tax (“FBT”) exemption for vehicles priced under $84,916.

“I contacted Fleet Network to investigate and quantify the potential savings after ordering my Tesla before this legislation was passed. My initial conversation with Giles Cooper, from an employer’s perspective, confirmed my suspicions that this was of no cost to the business and a significant benefit to both myself and other staff as employees. With more than two decades in the salary packaging, novated leasing, and fleet management industry, Giles Cooper’s knowledge was clearly evident.”Clinton Reid

A novated lease is a tri-party agreement among an employer, an employee, and a novated lease financier, enabling employees to pay for their lease and running costs before income tax.

Novated Lease Benefits:

  • Reduces taxable income.
  • Deducts finance lease payments and budgeted running costs (fuel, servicing, tires, registration renewal, and insurance) from an employee’s taxable income via payroll.
  • Provides GST savings on vehicle purchases and running expenses.
    Offers flexibility of lease term.
  • For EVs and PHEVs, with FBT exemption, all finance and running costs come from pre-tax income.

Novated Myth-busting:

  • FBT no longer varies based on distance driven; it is now a flat 20% for combustion engine cars, resulting in significant savings compared to income tax rates for annual salaries greater than $45,000.
  • Novated leasing is not limited to new cars; used vehicles or even already-owned ones can be novated.
  • Driving for work is not a requirement, and there is no need for a logbook. The vehicle can be used by any family member. Ideally, the one driving more.
  • Novated leasing is effective for salaries above $45,000 per annum.
  • Novated leasing is a form of finance that allows ownership at the end of the lease.

End-of-Lease Options:

  • Update to a new car with options to trade-in the current vehicle or sell privately.
  • Refinance the residual value and extend the lease, reducing repayments and prolonging the tax benefit.
  • Payout the amount owing and keep the car. Any unspent budgeted running costs are returned to the employee via the employer payroll.

Interest Rate Comparison:

While novated leasing interest rates may be slightly higher, the key is the cumulative cost over the shorter lease term compared to a home loan.

Changing Employers:

Ideally, new employers should allow novated leasing for a smooth transfer and maintenance of tax benefits. Otherwise, the lease reverts to a personal post-tax payment.

Note: While FBT-exempt, the Reportable Fringe Benefit for electric or hybrid vehicles still needs to be included in the employee’s group certificate. Employees investigating novated leasing should seek independent financial advice.

For more information about this article, please contact Supervision today.

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