Changes coming to how governments tax electric vehicles
1 August 2022
In welcome news for owners and providers of electric vehicles, the Government has introduced the Treasury Laws Amendment (Electric Car Discount) Bill 2022 to Parliament which, along with other measures the Government is taking, will impact how governments tax electric vehicles.
If enacted, the new Bill will amend the Fringe Benefits Tax Assessment Act 1986 to allow employers providing employees with zero or low emissions vehicles to be exempt from fringe benefits for eligible cars.
Treasury Laws Amendment (Electric Car Discount) Bill 2022
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 is being introduced to encourage greater take up of electric cars and encourage more employers to provide employees with electric vehicles, which will contribute to reducing transport emissions.
However, while our tax consultants believe the Bill is a step in the right direction, there is still uncertainty as to how this will impact the uptake of electric vehicles as there other contributing factors .
To qualify for the FBT exemption, the value of the car must be below the luxury car tax threshold for fuel efficient cars, which is currently $84,916. The car must also be first held and used on or after 1 July 2022 and the exemption will only be available to cars (as defined for FBT purposes) that are:
Battery electric vehicles.
Hydrogen fuel cell electric vehicles.
Plug-in hybrid electric vehicles.
The FBT exemption will be implemented as an ongoing measure and reviewed after three years in light of electric vehicle take-up to ensure it remains effective. It remains to be seen if the uncertainty of whether the FBT exemption will still apply beyond 30 June 2025 will result in employers and employees being reluctant to enter a lease arrangement.
It is important for employers to note that while a FBT exemption is available for eligible cars, there will still be a requirement for employers to report a reportable fringe benefit amount (RFBA) on the employee’s annual payment summary despite the car being treated as exempt from FBT (i.e. differing treatment applies to the FBT exemption and RFBA components).
Other government changes impacting electric vehicles
State and Territory governments have recently introduced a number of initiatives that will start to change how they tax electric vehicles and encourage the take up of zero emission vehicles.
Two years’ free registration on newly purchased zero emission vehicles.
A stamp duty exemption on newly purchased zero emission vehicles.
Interest free loans of up to $15,000 for the purchase of zero emission vehicles.
Setting a sales target that 80-90% of new vehicle sales are zero emission vehicles by 2030.
Committing to explore the phase-out of new light internal combustion engine vehicles by 2035.
NSW - A stamp duty exemption on newly purchased zero emission vehicles.
QLD - Reduced stamp duty charged on electric and hybrid vehicles.
TAS – Two-year stamp duty waiver on both new and second-hand vehicles.
VIC - Electric vehicles are exempt from the “luxury vehicle” rate of stamp duty.
Removal of customs duty on certain electric vehicles
On top of the FBT Bill and the initiatives that State and Territory governments have introduced to tax electric vehicles at a State and Territory level, the Federal Government will also introduce changes to remove the five per cent import tariff for eligible electric cars.
The Australian Customs Notice 2022/34 sets out how the Government proposes to amend the Customs Tariff Act 1995 to provide duty-free treatment for eligible electric vehicles imported into Australia on or after 1 July 2022.
All goods that meet the eligibility requirements will have the ‘Free’ rate of duty except for those from Russia and Belarus which, under current restrictions, have an additional duty of 35 per cent applied.
Similar to the FBT measures, this measure will apply to imports of new passenger motor vehicles that are electric vehicles, plug-in hybrid vehicles or hydrogen fuel-cell vehicles (electric cars) with a customs value below the fuel-efficient luxury car tax threshold.
Closing thoughts on how governments tax electric vehicles
We support the initiatives that State and Territory governments have introduced to tax electric vehicles and help lower the costs of zero emission vehicles so that it encourages the take up of these vehicles.
However, if any of these initiatives are to meet expectations, it is imperative for governments at all levels to support these measures and ensure that the adequate infrastructure and strategies are in place to support them.