FBT isn’t payable on payments for eligible electric vehicles up to the Luxury Car Tax threshold; this could provide employees with significant income tax savings compared with a standard car loan.
Salary packaging an electric vehicle through vehicle-solutions FBT exempt novated lease may make salary packaging an attractive tax change option for those considering purchasing one. Read on to discover its advantages.
Reduced tax burden
Vehicle-solutions FBT exempt novated lease enable employees to salary package their car through salary packaging, with lease payments deducted from pre-tax income. It creates a Fringe Benefits Tax (FBT) liability that can be reduced or eliminated by making after-tax contributions towards running costs for the vehicle.
An FBT exemption introduced in 2022 allows eligible electric vehicles and PHEVs to be salary packaged without FBT payable on lease and running costs, significantly lowering both upfront costs as well as ongoing running expenses, thus encouraging uptake among employers and employees alike.
With a novated lease from ORIX, all vehicle financing and operating costs are combined into one simple monthly payment that’s collected (partially or fully) from an employee’s gross salary, helping reduce taxable income while optimising take-home pay. It provides an alternative to taking out personal loans or paying in cash upfront for the car; for more information, see our user-friendly guide to novated leasing.
Environmental benefits
Starting on 1 July 2022, FBT for all-electric cars up to the luxury car tax threshold ($89,332 in FY2023/24) was removed. It also applies for novated leases on these EVs, meaning you could salary package your purchase and cover running costs such as registration, insurance and charging with pre-tax money – saving thousands each year in taxes!
Electric vehicles (EVs) are more efficient and cost less to run than their traditional counterparts, helping reduce your carbon footprint and environmental impact. Opting for one with FBT exemption through novated leasing can further boost your green credentials while yielding substantial financial savings.
Tax-free incentives for employees
Vehicle-solutions FBT exempt novated lease is a three-party arrangement between you, your employer and a novated leasing provider to finance your new car through finance lease and salary sacrifice agreements, with lease payments plus running costs (fuel, servicing, insurance and registration) collected pre-tax from wages for collection by novated leasing providers – ultimately decreasing taxable income and maximising take-home pay.
Understanding novated leases and FBT works requires professional advice from your financial adviser. A specialist can assist in helping you understand its benefits and risks as compared to alternative financing solutions like car loans.
Financial case
Novated lease payments typically come out of pre-tax salary (or entirely pre-tax for eligible EVs). It lowers your taxable income and can increase disposable cash; however, FBT must still be paid on its taxable value using either the Statutory Formula Method (or using vehicle running costs as the basis) as per the Vehicle Operating Cost Method (VECM).
Employers that offer vehicles through salary sacrifice agreements may incur fringe benefits tax (FBT). The employer will owe this tax based on any taxable benefits provided to employees or their associates from such arrangements.
Employees can reduce the risk of FBT by making post-tax contributions towards running costs for their novated lease car, such as fuel and servicing costs. These contributions can then be claimed back as GST credits to reduce their taxable value and your FBT liability at year’s end. Seek professional advice, if necessary, on how this can be accomplished.
The tax man may not be on everyone’s Christmas card list, but he could make an appearance this year if you get a novated lease on an electric vehicle. The Australian government has recently passed legislation exempting Fringe Benefits Tax (FBT) on EVs and plug-in hybrid electric vehicles (PHEVs), which makes them more affordable for employees who purchase them through salary packaging arrangements such as a novated lease.
It is a significant financial saving and could potentially make the case for an EV more compelling than ever. However, it’s wise to seek advice from a qualified accountant before making any decisions.