There’s been a lot of excitement with electric vehicles and novated leasing since the FBT Exemption for EVs and PHEVs was announced in 2022. The one component of the Electric Car Discount Bill that hasn’t been fully understood is the ‘reportable’ aspect of Fringe Benefits Tax (Reportable Fringe Benefits Amount – RFBA).
If the total value of reportable fringe benefits provided to an employee during the FBT year is more than $2,000, employers must report the grossed-up amount of the benefits on the employee’s income statement or payment summary.
The FBT Exemption means there’s no liability to pay FBT, significantly reducing the annual ownership costs, but the RFBA is used by the ATO and Services Australia to determine certain obligations and entitlements.
Switching from a $40k petrol car with a RFBA of approximately $8,000 to an $80k electric car with a RFBA of approximately $16,000 may cause financial pain for many households.
The traditional way to reduce the FBT was via the Employee Contribution Method (ECM) which involves the employee making a contribution to the vehicle’s running cost to offset the benefit provided when using the car for personal trips.
ECM is popular with novated leasing though less popular with Tool-of-Trade cars which are meant to have a high percentage of business trips which reduces the FBT liability.
In the draft ruling from the ATO on the reimbursement method for charging electric cars at home, there were examples showing how employees could reduce their reportable FBT by charging the vehicle at home and applying a rate of 4.2 cents per kilometre as the employee contribution.
ATO example for EV home charging using ECM
An employer purchased an electric vehicle for $90,000 (including goods and services tax) on 1 July 2022. It was provided to an employee for private use for the 2022-23 FBT year, and the employee travelled a total of 27,037 kilometres during that FBT year.
The employee charged the electric vehicle at their residential premises throughout the year, paid for the electricity and provided the employer with the necessary declaration for the electricity costs. The home charging electricity cost was a employee contribution amount.
Applying the EV home charging rate, the employee worked out the home charging electricity cost as:
electric vehicle electricity charging cost = total km travelled by vehicle × 4.20c per km
27,037 km × 4.20c per km = $1,135
Therefore, the taxable value for FBT purposes using the statutory formula method is:
base value of the car × statutory formula % × days held in year ÷ 365 – employee contribution
$90,000 × 20% × 274 ÷ 365 – $1,135 = $12,377
In this example the employee contribution of $1,135 reduced the RFBA which may also reduce the financial impact on the employee of driving an electric vehicle for work.
Other ways to reduce RFBA
The only reason there is a reportable fringe benefit is because the car (electric/petrol/diesel) is being used for personal travel. The trips you take as a family on weekends and after work all contribute towards the FBT liability.
Businesses that still use the statutory method for calculating FBT are potentially impacting employees by adding more to their income statement or payment summary. This is amplified when driving an electric car that has a significantly high purchase price.
If the car is predominately used for work travel then the business usage percentage should be high and the RFBA will be low. There is a catch. Your employer must use the operating cost method to calculate FBT which requires the driver to use a logbook.
So talk to your Finance team and find out which method they are using to calculate FBT on the fleet. If they’re using the statutory method, ask them to use the operating cost method on your car (they can use a different method on each vehicle to minimise the FBT amount) and start keeping a logbook.
