Law and policy updates
FBT exemption for electric vehicles
From 1 July 2022, employers will not pay FBT on eligible electric cars and associated car expenses if all of the following conditions are met:
- The car is a zero or low emissions vehicle. A zero or low emissions vehicle is a battery electric vehicle, a hydrogen fuel cell electric vehicle, or a plug-in hybrid electric vehicle. From 1 April 2025, plug-in hybrid electric vehicles will not be considered zero or low emissions vehicles under FBT law. However, the exemption will still apply if the use of the plug-in hybrid electric vehicle was exempt before 1 April 2025, and there is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. Optional extensions will not be considered binding.
The exemption only applies to vehicles that are “cars” for FBT purposes, i.e., designed to carry a load of less than one tonne and less than 9 passengers. Other types of electric vehicles, such as electric motorcycles and scooters, will not qualify for the exemption.
- The first time the car is both held and used is on or after 1 July 2022. The car can be held prior to 1 July 2022; however, its first use must be after that date. “Held” means owned, leased, or otherwise made available by another entity.
- The car is used by a current employee or their associates (including family members).
- No amount of luxury car tax was payable on the supply or importation of the car. This means that the value of the car at the first retail sale must be below the luxury car tax threshold for fuel efficient vehicles ($84,916 in 2022–23).
Where these conditions are met, the FBT exemption will extend to the associated car expenses for that vehicle, e.g., registration, insurance, repairs or maintenance, and fuel costs. Fuel costs will include the cost of electricity to charge and run the vehicle. The ATO is currently preparing a draft practical compliance guideline (Draft PCG) on calculating electricity costs when charging a zero or low emissions vehicle at an employee’s or an individual’s home. The Draft PCG will provide a methodology to enable users of electric vehicles to determine an approximate cost for the electricity when charging an electric vehicle at home.
Note that a home charging station is not a car expense associated with providing a car fringe benefit for electric cars. However, depending upon how an employer sets up a charging station for their employee, it may be a property fringe benefit or an expense payment fringe benefit.
Exempt electric cars: reportable fringe benefits
Importantly, although the private use of an eligible electric car is exempt from FBT, the value of the benefit must be included when working out whether an employee has a reportable fringe benefits amount (RFBA).
Employers must work out the notional taxable value of the benefits associated with the private use of the exempt electric car. An employee has an RFBA if the total taxable value of certain fringe benefits provided to them (or their associate) is more than $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee’s payment summary.
Some further considerations
- Hybrid vehicles that are not plug-in hybrid electric vehicles are not covered by the exemption.
- Whether the cost of home charging equipment for electric vehicles can be capitalised into a novated lease without jeopardising the nature of the lease.
- Registration and state and territory road user charges. The ATO has released the Electric vehicles and fringe benefits tax fact sheet which addresses this and other practical issues.
- Provided that the eligibility conditions outlined above are met, the exemption applies to second-hand electric cars. However, practical issues might arise, e.g., in proving when the car was first used and whether luxury car tax was paid. A vendor may not necessarily be obliged to provide such information.
- The impact of various state-based rebate programs on leases.
“Electric cars now exempt from FBT — what this means for you”, Issue 1, 2023 of CCH Australian Tax Week.
Taxation Ruling TR 2021/2 Fringe benefits tax: car parking benefits was updated to provide that from 1 April 2022 (the current FBT year) car parking facilities that charge penalty rates higher than commercial rates are now considered to be commercial parking stations for FBT purposes. This change reflects the decision of the Federal Court in FC of T v Qantas Airways Ltd 2014 ATC ¶20-477;  FCAFC 168.
The change is significant because historically employers have been able to exclude car parking benefits from FBT where the only car parking facilities within a one-kilometre radius of the work car park were special purpose car parks, i.e., car parks that have a free period, or a low hourly rate but impose a penalty rate to discourage all-day parking (e.g., paid car parking at suburban shopping centres, universities and hospitals). However, these types of special purpose car parks are no longer excluded from the definition of commercial parking station and must now be considered by employers for the purpose of assessing and calculating FBT liability for car parking.
When preparing and lodging FBT returns this year, employers should review all their current car parking arrangements and consider if they are impacted by the change. This involves considering the indicators in TR 2021/2 and its requirements in terms of commercial car parking within a one-kilometre radius. Importantly, the review should be documented so that point in time information can be referenced about decisions concerning whether a car park is a commercial parking station for FBT proposes.
Employers should also consider if a market valuation of the car parking they provide to their employees will help reduce their FBT costs which could potentially increase under the changes to the definition of commercial parking station.
The car parking threshold for the FBT year ending 31 March 2023 is $9.72.
The ATO is currently updating the car parking fringe benefits chapter of the Fringe benefits tax – a guide for employers.
Small business parking exemption
Small businesses are exempt from paying FBT on car parking benefits if all the following conditions are met:
- The parking is not provided in a commercial car park.
- For the last income year ending before the start of the relevant FBT year, the business’s gross total income was less than $10 million or aggregated turnover was less than $50 million.
Covid-19 and working from home
Covid-19 continues to impact work from home arrangements which remain popular and are increasingly becoming standard. The Covid-19 and working from home benefits fact sheet has been prepared by the ATO to help employers understand their FBT obligations where employees are provided with benefits to support working from home arrangements during Covid-19.
Exemption for specific work-related items
The following items are usually exempt from FBT (FBTAA s 58X) if they are primarily used by employees for work:
- Portable electronic devices (laptops, tablets, smartphones, calculators)
- Computer software
- Protective clothing
- Tools of trade
Importantly, the exemption is limited to just one of each of these items per employee where it carries out a substantially identical function. Certain exceptions apply for small business employers, or if the item is a replacement item.
Minor benefits exemption and otherwise deductible rule
The minor benefits exemption (FBTAA s 58P) may apply for minor, infrequent and irregular benefits under $300.
The “otherwise deductible” should also be considered. Under this rule, the taxable value for certain benefits may be reduced by the amount that the employee would be entitled to claim as a deduction in their income tax return had they incurred the expense themselves.
Office equipment on loan
Office equipment loaned to employees under long-term working from home arrangements may be exempt, however, employers need to ensure that there is a consistently enforced policy as to no private use and that the no private use declaration covers all the loaned office equipment.
Property valued at over $300 (which the employee now owns) and given to employees to allow them to work from home may attract an FBT liability.
Employees claiming their work from home expenses
Although not an FBT issue, but relevant to the topic of working from home, is how employees claim their work from home expenses. From 1 July 2022, there are now only 2 methods available to employees to calculate their claims for these expenses:
- Revised fixed rate method
- Actual cost method
The Working from home expenses page on the ATO website provides further information about these methods.
- The Treasury Laws Amendment (2022 Measures No 4) Bill 2022 proposes to amend the FBTAA to empower the Commissioner to allow employers to rely on alternative records (including existing corporate records where they are adequate), to finalise their FBT returns.
This will potentially provide an alternative to employee declarations and other prescribed records. The measure is not yet law, but when enacted it will apply from the start of the first FBT year following the date of assent.
- The Treasury Laws Amendment (Modernising Business Communications and Other Measures) Bill 2023 (the Bill).
Currently recipients of certain fringe benefits under the FBTAA are required to give their employer a declaration. The declaration must purport to set out “particulars of the car” (among other things). The declaration supports a reduction of the taxable value of certain fringe benefits.
The amendments in the Bill will remove the reference to “particulars of the car” as a requirement to be set out in a declaration, so that it will no longer be necessary for the Commissioner to obtain this information to administer the relevant provisions of the FBTAA.
ATO approach to education and compliance
The ATO has a strong focus on ensuring it provides practical and relevant support and guidance for employers to help them meet their FBT obligations. It has recently refreshed its web content to make it easier to read, understand and navigate. The ATO welcomes feedback on the refresh.
The ATO also continues to update its fact sheets and guidance. As stated above, a fact sheet on electric vehicles and FBT has been released, and a Draft PCG on electric vehicles will be released soon.
Education and guidance is also provided by the ATO though webinars, ATOtv, and the quarterly FBT Bulletin.
The ATO uses third party information, data matching, and risk models to identify potential non-compliance. Taxpayers may receive reminders from the ATO to allow them to self-correct. Additionally, the ATO undertakes targeted compliance as well with firmer action. This might be part of broader compliance activity into the whole business, or it could be specifically targeted to FBT.
What attracts the ATO’s attention?
One of the ATO’s major concerns is where employers are providing benefits to employees but failing to report them.
Other areas where the ATO sees mistakes in reporting are:
- Motor vehicles
Where private and business use is reported incorrectly, ie claiming 100%, or high levels of business use inconsistent with the use of the vehicle. Also, incorrectly classifying vehicles as “eligible commercial”, and not keeping appropriate records (eg declarations and logbooks).
- Employee contributions
Where employee contributions are reported in the FBT return but the corresponding amount is not reported in the income tax return or reported at the wrong label. Also, employee contributions are applied to reduce the FBT to nil, but no FBT return is lodged.
- Reportable fringe benefit amounts
Where amounts are not included or reported incorrectly.
Key compliance takeaways
- Identify the types of fringe benefits provided.
- Calculate the taxable value.
- Lodge an FBT return and report each employee’s fringe benefits on their payment summary.
- Keep records to demonstrate calculations.
FBT returns 2023
The statutory due dates this year for lodgment and payment are 21 May 2023 for self-preparers and tax agents who lodge by paper, or 25 June 2023 for agents that lodge electronically. However, as both these days are Sundays, the ATO will accept the due date for lodgment and payment on the next business day, i.e., Monday 22 May 2023 and Monday 26 June 2023 respectively.
The ATO also reminds employers registered for FBT to complete a Notice of non-lodgment – Fringe benefits tax form if they do not need to lodge an FBT return for the year.
If you missed the webinar, you may access the recording below.