The tax break making EVs more affordable

There is a way to make your next environmentally conscious car even more affordable to own. The Federal government offers a fringe benefits tax (FBT) exemption for fully electric vehicles.

In essence, the exemption gives salaried employees the opportunity to take out a novated lease on an EV and pay for it from their pre-tax income - and they won't need to pay the usual FBT.

Any electric car "first held and used" on or after July 1, 2022, that falls under the luxury car tax (LCT) threshold of $89,332 could potentially see significant savings and allow you get into a better car for similar out-of-pocket costs.

The FBT exemption also applies to plug-in hybrid (PHEV) models.

Which vehicles qualify for the FBT exemption?

The vehicle has to meet the tax office's criteria of being fully electric, plug-in hybrid or hydrogen fuel cell.

It cannot be designed to carry more than one tonne (otherwise known as a 1000kg-plus payload), which largely rules out heavy-duty work vehicles, nor can it have more than eight seats.

There are more than 30 EVs that fall below the $89,332 threshold - and that price includes GST, dealer delivery and accessories but excludes stamp duty and registration.

They range from compact budget-friendly hatchbacks to luxury cars and SUVs.

If you are considering a car that's close to the threshold, your choice of colour or options may push it over the exemption limit. So, be sure to choose wisely.

How much can you save?

Novated leases allow you pay from your pre-tax income. So, the greater your income, the higher your tax rate and the more the potential savings could be.

According to research by the RAC and SG Fleet, the impact on your take-home pay of an internal combustion engine (ICE) car that costs about $36,000 would be almost identical to getting into an EV with a price tag of $64,000 for someone earning between $75,000 and $100,000. For those in a higher tax bracket, with an income of $200,000, the savings would be more than $100 a month.

What about PHEVs?

Plug-in hybrids are often misunderstood by consumers. They have an electric motor and a decent-sized battery pack that generally allows more than 60km of EV driving range. They also have a petrol engine that can take over when the car runs out of charge, or even act as a generator to replenish the battery pack.

In essence, they could offer the best of both worlds for people who do an average daily commute, but don't want to commit to the potentially higher cost of an EV.

The bad news is that PHEVs will no longer be eligible for the FBT break after April 1, 2025.

Do used vehicles qualify?

Novated leases can be taken up on used vehicles, but you will need to ensure that if you're buying a pre-owned EV that it has never been subject to the luxury car tax. If it has been, it will not be eligible for the FBT exemption.

Another consideration for those considering a lease on an FBT-exempt vehicle is that while the reportable FBT amount isn't included against assessable income, it is included in "income tests and thresholds for family assistance, child support assessments and some other government benefits and obligations," according to the tax office.

So, before you sign up for what appears to be the EV deal of a lifetime, speak to your accountant or financial adviser.

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