One of the most affordable ways to finance a personal vehicle just received yet another boost to its savings potential. With an amended Bill introduced to remove Fringe Benefits Tax (FBT) on electric vehicles (EVs) under a novated lease agreement, current employees are now able to reduce the costs of car finance even further.
Government incentives for EVs in Australia
Governments around the world have made a push for lower emissions through increased use of EVs by the public, and the Australian Government is no different, addressing the hurdles to greater adoption of EVs by offering incentives and rebates to make the switch more cost-effective for the consumer.
While rebates have previously varied from state to state, the latest bill proposed by the Labor Government will apply at a national level and offer significant savings opportunities when financing an electric vehicle under a novated lease through their employer.
Benefits of a novated lease
Novated leasing already provides a number of benefits when used by employees, both in upfront savings and in reducing taxable income.
A fully maintained novated lease includes the associated running expenses for your vehicle such as comprehensive insurance, servicing, registration renewals and even fuel. Best of all, as all of these costs are included in your lease payments, you’ll avoid having to pay the GST as you normally would.
A novated lease allows you to purchase a vehicle without paying GST, as you acquire the vehicle through the leasing company. This is one of the only ways to access this discount when financing a personal vehicle.
A novated lease reduces your taxable income by taking payments from the pre-tax portion of your salary. This can lead to significant income tax savings and ensures you never miss a payment as it’s taken care of automatically through your payroll each pay cycle.
New ways to save with an EV novated lease
The Labor Government’s recently introduced Treasury Laws Amendment (Electric Car Discount) Bill 2022 removes FBT liability for zero or low emission (i.e. electric cars) provided to an employee for their private use.
In short, this means that the lease payments on a novated lease for an eligible vehicle will be deducted entirely from the driver’s pre-tax income. This will lead to significant income tax and GST savings.
Exemption: Electric Vehicles Fringe Benefits Tax
Maximum Retail Price of Vehicle: $84,916
Start Date: 1 July 2022
Battery electric vehicles that:
- Use only an electric motor for propulsion
- Are not fitted with a fuel cell or an internal combustion engine.
Hydrogen fuel cell electric vehicles that:
- Use an electric motor for propulsion
- Are equipped with a fuel cell for converting hydrogen to electricity
- Are not fitted with an internal combustion engine.
Plug-in hybrid electric vehicles that:
- Use an electric motor for propulsion
- Take and store energy from an external source of electricity
- Are fitted with an internal combustion engine for the generation of electrical energy and/or propulsion of the car. Internal combustion engine vehicles will only qualify for the exemption if they can be recharged via an off-vehicle power source.
Second-hand electric cars may qualify for the exemption only if the car was first purchased new on or after 1 July 2022
Electric cars ordered prior to 1 July 2022 but not delivered until after 1 July 2022 may qualify (even if the employer acquired legal title to the car prior to 1 July 2022).
For employees, an already affordable method of financing a vehicle could arguably be the best way to save when getting a car through finance.
For business owners, these changes mean that one of the best incentives offered to employees through salary sacrifice just became even more affordable and enticing.
And for all of Australia, electric vehicles are finally receiving the boost they need to see full adoption toward a cleaner, more affordable future of car ownership.
