Unlocking the Benefits of Salary Sacrifice Electric Cars in 2023
Salary sacrificing is an employee benefit that allows employees to access a range of products and services including electric cars at no upfront cost. The introduction of the FBT exemption for electric cars now means in many cases it is a more cost-effective option than purchasing outright. Furthermore, it will also mean it is much cheaper to own than a comparable petrol car.
In this article we'll answer some commonly asked questions about salary sacrificing:
- Is it worth salary sacrificing an electric car?
- What is the best way to salary sacrifice an electric car?
- Can you salary sacrifice electricity?
- Which electric car are FBT exempt?
Is It Worth Salary Sacrificing an Electric Car?
While the financial impact of the electric car discount will differ depending on individual circumstances, the exemption from FBT for EVs will generally make salary-sacrificing a more attractive option compared to other methods of purchasing an EV, as no FBT will be payable.
The government estimates that “for individuals using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4700 a year.” These figures are broadly in line with our calculations (below).
Comparison across different purchase options
Based on a $50,000 vehicle and $150,000 salary, over 3 years, an FBT exempt EV on a novated lease will save c. $4,000 p.a. compared to a traditional novated lease. The main driver of this is the much higher "net tax benefit" due to the absence of FBT payable on the car. In this example, there is $10k (employee contribution) to $18k (statutory method) of FBT payable over three years in the absence of an FBT exemption - for eligible electric cars it will be NIL.
Read our guide on novated leases to learn more about how they work with electric cars.
Note: we are not privy to the assumptions used by the government’s modeling nor do we guarantee the accuracy of zecar’s estimates. These are for illustrative purposes only.
What is the Best Way to Salary Sacrifice an Electric Car?
Salary sacrifice is a way of using your pre-tax income to pay for a car. The most common way to salary sacrifice to pay for a car is through a novated lease. With a novated lease, you buy a used or new car and your employer covers the lease cost. The lease payments are made from your pre-tax income, which reduces your tax liability.
Can You Salary Sacrifice Electricity?
Yes, you can salary package electricity costs within your EV novated lease. Typically you must be able to demonstrate specifically how much energy – and the cost of the energy – is going towards charging your EV. This can be done by providing invoices or receipts from your energy provider that show your electricity usage and cost.
Public Charging Networks
In a traditional novated lease you would use a fuel card which records all your expenditure at petrol stations.
In the case of public charging networks, you'll be able to obtain your expenditure information from the account which records all your charging sessions and the costs.
Charging at Home
Accurately measuring your electricity expenditure attributable to charging your EV can be tricky depending on your situation. If you are using a dedicated wall charger, this should be a straightforward process as you should be able to access the usage from the charger and multiply that against your tariff.
If however, you're charging from a powerpoint which is mixed with general electricity usage, this makes the attribution difficult. To overcome this, the ATO has released the following draft ruling which provides an option to use an estimate:
The rate for the FBT tax year or income year commencing on or after 1 April 2022 is 4.2 cents per kilometre. This EV home charging rate is multiplied by the total number of relevant kilometres travelled by the electric vehicle (not a hybrid) in the relevant income year or FBT year.
This works out to be about $0.28 per kWh which is broadly in line with the average flat electricity tariff. While this solution may not perfectly measure your actual consumption it is a way to easily capture most of your expenditure to maximise your tax benefits from your EV novated lease.
Which Electric Cars Are FBT Exempt?
To be exempt from Fringe Benefits Tax (FBT) the electric car value must fall below the luxury car tax threshold and be first held and used after 1 July 2022. Below are the electric cars that are exempt from FBT:
DISCLAIMER: zecar is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances.
zecar is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.
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