Fringe trimmer: EV tax breaks reshaping company car landscape?

Australia’s tax rules currently make electric vehicles – and for now, plug-in hybrids – attractive company cars.

That’s because provided they cost less than $89,332, fringe benefits tax (FBT) does not apply. Which means EVs and plug-in hybrids can be more cost-effective for businesses that offer employees company cars as part of their package.

For plug-in hybrids, the FBT exemption will come to an end in 2025. For fully battery powered electric cars, or BEVs in industry parlance, the arrangement runs until at least 2027, when the Federal Government plans a review.

The only real caveat with the exemption is that the cars must not meet the threshold for Luxury Car Tax (LCT). In the current financial year, that’s $89,332 for EVs and plug-in hybrids (details here).

That means many electric vehicles currently available will not be subject to FBT when used as company cars. Some industry estimates suggest about 80 per cent of EVs currently sold in Australia come in under that threshold.

**Broader benefits**

More businesses – and employees – are realising the advantages this can provide. Given novated leasing (basically a leased company car) makes up about 10 per cent of the entire car market in Australia, the tax arrangements for company electric vehicles could end up being a significant growth driver for the broader EV market.

For carmakers and dealers, the tax breaks could mean that business customers increasingly become a focus of sales and marketing efforts.

The upshot is a faster transition to electric vehicles – because the lease market tends to fuel the second hand market. When three- or five-year terms come to an end, the cars are sold on.

That means people who may not be able to afford a new electric vehicle can make the switch.

Find further detail on FBT here. For other electric vehicle incentives in Australia, state by state, this I-Roll article from July may be useful.