Packaging an Electric Car - wonderful new tax saving opportunity

The Federal Government has announced their intention to legislate the removal of Fringe Benefits Tax on Electric Cars. How does this help?

And help it does.

It means that you can salary package a car and your employer doesn’t need to pay FBT. That slashes the cost of the car to them and therefore to you. You are effectively going to get a car paid out of pre-tax earnings, without any add back for FBT. This is a wonderful new saving.

Cars are already concessionally taxed, but with this change, instead of you saving your marginal tax rate on around 30% of the value of the benefit for a petrol or diesel car, you’ll now save your marginal tax rate on 100% of the electric vehicle. If a vehicle cost $70k to buy, and had all-in costs (including interest and depreciation) of $20k p.a., then if it was a petrol or diesel car, then you’d save tax on $6k p.a. of the ongoing cost. At 34.5% tax rate that’s $2070 p.a. If it was an electric car, you’d save 34.5% of $20k, or $6900. In this example, you save an extra $4830 per annum in tax! The savings are larger again if you earn more than $120k p.a.

This is not legislated, but will likely pass both houses of parliament (has been presented to the lower house) without difficulty, and it is designed to start from 1st July 2022. Vehicle value needs to be below $84916. The Feds are also cutting import duties on electric cars not sourced from a free trade country, effectively now meaning there will be no such tax on cars from any source. There are a variety of vehicles available and more to come, that meet this threshold.

The new generosity at a Federal level, could make for a compelling argument to switch to a vehicle that’s not exposed to high petrol and diesel prices.