The Government recently introduced a new FBT exemption for electric cars provided by employers to employees (including under a salary packaging arrangement) where certain conditions are satisfied.
This new FBT exemption provides an opportunity for employees on all income levels to achieve significant after-tax savings by salary packaging an electric car that qualifies for the FBT exemption.
Such a salary packaging arrangement could also involve an employee salary packaging ‘car expenses’ in relation to an electric car (e.g., electricity costs associated with charging an electric car, repairs and maintenance, and insurance and registration) which are FBT-exempt under S.53 of the FBT Act (as noted above).
The following example illustrates the after-tax savings associated with salary packaging an FBT-exempt electric car valued at $50,000, for an employee earning an annual salary of $80,000.
Employee salary packages an eligible FBT exempt electric car
Clarence is an employee of a GST-registered employer, earning an annual salary of $80,000. Clarence is considering acquiring a new electric car valued at $50,000.
Instead of taking out a personal loan to buy the car, Clarence enters into a three-year novated lease agreement to salary package the car through his employer on 1 July 2023, as there will be no FBT cost to her employer because of the new FBT exemption for electric cars.
Clarence’s employer will also pay all lease payments and running costs related to the car, which will be FBT-exempt too.
By salary packaging the car (instead of taking a personal loan to personally buy the car), Clarence will increase his net disposable income for the 2024 income year by $6,021, as illustrated below.
Calculate Clarence’s salary sacrifice amount
| GST-exclusive vehicle expenses | AUD |
| Annual lease payments (including GST) | 11,200 |
| Electricity charging costs, repairs, insurance, etc. (including GST) | 3,300 |
| Registration (GST-free) | 800 |
| GST-inclusive car expenses – See Note 1 | 15,000 |
| Less: GST input tax credits | 1,291 |
| GST-exclusive car expenses | 13,709 |
| Salary sacrifice amount – See Note 2 | 13,709 |
Comparison of packaging versus not packaging
| 1) Packaging – Jill salary packages the electric car | AUD |
| Clarence’s salary – See Note 3 | 80,000 |
| Less: salary sacrifice amount (refer above) | 13,709 |
| Taxable income – See Note 3 | 66,291 |
| Less: income tax (including Medicare levy) – See Note 4 | 13,337 |
| Net disposable (or after-tax) income | 52,954 |
| 2) No packaging – Clarence buys electric car by taking out a loan | |
| Clarence’s salary (taxable income) – See Note 3 | 80,000 |
| Less: income tax (including Medicare levy) – See Note 4 | 18,067 |
| After-tax income | 61,933 |
| Less: GST-inclusive car expenses – See Note 1 | 15,000 |
| Net disposable (or after-tax) income | 46,933 |
| Increase in Clarence’s net disposable income (i.e., 52,954 – $46,933) | 6,021 |
| Note 1: | For simplicity, it is assumed that Clarence’s car expenses will be similar, whether he salary packages the electric car or buys the car himself (financed by way of a loan). |
| Note 2: | Clarence’s salary sacrifice amount is limited to the GST-exclusive car expenses paid by her employer. This is because there is no FBT cost to the employer in relation to providing the car, as the car benefits that arise in relation to the car (and the car expenses paid by the employer) will be exempt from FBT. |
| Note 3: | It is assumed that Clarence has no other assessable income, nor any allowable deductions, for the income year. |
| Note 4: | Income tax is calculated based on the marginal tax rates for the 2024 income year, assuming the Medicare levy surcharge does not apply, and disregarding entitlements to any tax offsets and concessions. |