Just in time for the Fringe Benefits Tax (FBT) year that started on 1 April, the Australian Taxation Office (ATO) has released new details on electric vehicles.
FBT exemption for electric cars
If your employer provides you with the use of a car that is classified as a zero or low emissions vehicle there is an FBT exemption that can potentially apply to the employer from 1 July 2022, regardless of whether the benefit is provided in connection with a salary sacrifice arrangement or not. The FBT exemption should normally apply where:
- The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and
- The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn't made available to employees until 1 July 2022 or later.
The exemption also includes associated benefits such as:
- Repairs or maintenance, and
- Fuel, including electricity to charge and run the vehicle.
But, it does not include a charging station (see How do the tax rules apply to home charging units?).
While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee's income statement. While you don't pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.
Who the FBT exemption does not apply to
By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders are not employees and cannot access the exemption personally.
If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity).
How do the tax rules apply to home charging units?
The ATO has confirmed that charging stations don't fall within the scope of the FBT exemption for electric cars. This means that FBT could be triggered if an employer provides a charging unit to an employee.
If an employee purchases a home charging unit then it might be possible to claim depreciation deductions for the cost of the unit over a number of income years if the unit is used to charge a vehicle that is used for income producing purposes. However, if an employee is only using the vehicle for private purposes then the cost of the charging unit is a private expense and not deductible.
What about the cost of electricity?
A friend of mine travels a lot for work and used to rack up large travel expenses…right up until he switched to an electric vehicle. Now it costs him 3 cents per km in electricity.
Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km for running costs for EVs provided to an employee (from 1 April 2022 for FBT and 1 July 2022 for income tax).
Rate applying to fringe benefits tax year or income year commencing on and after
EV home charging rate
1 April 2022
4.20 cents per km
If you use this rate, you cannot also claim any of the costs associated with costs incurred at commercial charging stations. It is one or the other, not both.
You also have the option of using actual electricity costs if you can calculate them accurately.
Selling a business? The pros and cons of earn-out clauses
Earn-out clauses for the sale of a business are increasingly common. We look at the positives and negatives that every business owner should consider.
Business transactions often include earn-out clauses where the vendors ‘earn' part of the purchase price based on the performance of the business post the transaction. Typically, an earn-out will run for a period of one to three years post transaction date.
There are two main reasons to include an earn-out in a sale:
- To bridge a gap in the sale price expectations between the vendor and the purchaser. The earn out represents an ‘at risk' form of consideration. If the business produces the result, the vendors are rewarded through a higher sale price.
- To incentivise the vendors who are continuing to work in the business and maintain the growth momentum of the business post sale.
Advantages of earn-outs include:
- The ultimate sale price has a performance component to it – both buyer and seller benefit.
- May assist in achieving a sale where a price impasse would otherwise prevent the sale.
- If the calculation of the earn-out is transparent and easily measurable, there should be no dispute between the parties.
- Creates equity where the business has lagging income, new business initiatives in play at the time of sale or a high growth rate.
- The incremental sale price can be effectively funded by the business out of realised growth.
The key to an effective earn-out is in their construction, both from a commercial and a legal perspective. Get them right and they can enhance the continuity and succession of a business.
What sharing platforms are sharing with the ATO
From 1 July 2023, a new reporting regime will require platforms that enable taxi services including ride sourcing, and short-term accommodation to report their transactions to the ATO each year. From 1 July 2024, the regime will expand to include all other platforms.
While the legislative instrument for the reporting regime is still in draft (see LI 2022/D27), it is expected that platform providers will report their transactions to the ATO every six months.
What information on sellers will the ATO know?
The platforms will submit data on the sellers for transactions on their platform including:
- ABN and business / trading name (where applicable)
- First, middle and surname/family name (for individuals)
- Date of birth (for individuals)
- Residential or business address
- Email address and telephone numbers
- Bank account details.
- And, for platforms facilitating short-term accommodation:
- Listed property name
- Listed property address
- Number of nights booked.
In addition, the platforms will provide aggregate quarterly data on the value of transactions, industry types, total gross income etc.
The reporting regime does not include platforms that simply match suppliers to sellers and are not engaged in the transaction such as quotes for hiring tradies where the job is not accepted through the website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.