The recent labour government win in the election has one promise that will massively change the tax landscape when it comes to HR management and salary packaging motor vehicles for employees.
The proposal is that no fringe benefits tax will apply to an electric car if the cost of the car is less than $84,916 (2023). And while the exemption should apply from 1 July 2022 we have not yet seen draft legislation or had that legislation pass both houses of parliament.
If you, as an employer, provided an employee with an $80,000 car the fringe benefits tax cost on the car will be around $16k. This exemption eliminates that cost. And if the employer qualifies for temporary full expensing (100% tax deductions on capital purchases) most of the purchase cost will also be tax deductible.
Of course the challenge might be for some to find an electric car for under $84k or getting one delivered. Further, it is not yet clear if the tax exemption will apply for hybrid vehicles, second hand electric cars or demonstration vehicles as well. And we are closely watching legislation to see when it will issue.
If we consider an employee on a $200k salary the tax benefits for electric cars will be significant:
| Petrol car | Electric car | |
| Base salary | $200,000 | $200,000 |
| Less | ||
| Super | $17,000 | $19,000 |
| Car expenses (est) | $22,000 | $22,000 |
| GST in car costs | -$1,000 | -$1,000 |
| Fringe benefits tax | $16,000 | – |
| Tax on salary | $47,467 | $42,007 |
| Take home pay | $98,533 | $117,993 |
| Cash benefit from electric | $19,460 | |
| Pay increase | 19.7% |
The above calculation also does not factor in the tax benefit enjoyed by the employees superannuation fund. The additional $2k that is contributed to the employees super fund will generate another $1,700 in benefits to the employee (taking the total benefit to $21,160).
And the $21k increase in take home pay for the employee is an ongoing benefit.
In effect electric cars will now be the salary package vehicle of choice. And employees on lower salaries will still enjoy significant increases in their take home pay by salary packaging electric cars.
While the government said that the position will be in place for 3 years and it might reverse after that – the current tax offering for salary packaging electric cars is significant and should be considered.
Many employers, especially in Perth, have expressed sadness that they cannot provide an electric car to their team as they all need utes and small trucks. However the law allows for an employee to enjoy two or more cars to be salary packaged. So using a creative tax mindset might be that the employees main work car (say a Hilux) is a petrol car but the employee is then provided with an electric car as the family car.
This exemption, while no doubt attractive, is not without equal. The UK adopted a similar position and the market presence of electric cars went from 2% to 17%.
Employers will now be facing many questions from their team to salary package electric cars. Or in a war for talent, offering higher effective salaries to their team will be an incredible advantage in running a family business that outperforms their competition.
Talk to your Westcourt tax team for advice on how to salary package your team members and use HR packaging as a competitive edge in making your business succeed.
