Why Electric Cars now make Business Sense in 2023

According to a RACE 2030 report, business fleets (government and company) comprise 40 per cent of light vehicle sales. When it comes to EV’s however, business fleets are underrepresented.

Of the 600,000 vehicles sold in 2020, only 488 (0.08%) were electric. This is ten times less than the broader market where EVs comprised 0.8% of total sales.

So why are business fleets so frastically behind in terms of EV uptake? The reasons are nuanced but businesses are primarily driven by financial factors and until recently, the economics of electric cars didn’t stack up.

Today however a confluence of market forces are pushing business fleets towards electrification. Firstly, electric cars have likely crossed cost parity (on a total cost of ownership basis) versus a petrol equivalent. Secondly, there has never been more pressure on large businesses and the government to invest in fulfilling their ESG obligations, de-carbonisation being one of the key focus areas.

The good news is electrification can substantially reduce transport emissions and the removal of the FBT will substantially improve the economics of EVs to a point where it is not debatable. Similar changes were introduced overseas (such as the UK) to great effect and saw a surge in business uptake of EVs.

If your business has cars on its books, there is a good chance FBT is being paid on them. With the exception of some vehicles, the vast majority of cars are subject to FBT.

Fringe benefits tax (FBT) is a tax that employers pay on benefits paid to an employee in addition to their salary or wages. In the context of cars, there are two main instances where vehicles are supplied to employees:

• Standard company fleet vehicles are provided to employees for work purposes e.g. sales representatives of businesses.
• Novated lease/salary sacrifice arrangement whereby an employer pays for the employee's car lease and running costs through their salary.

According to the ATO:

"For fringe benefits tax (FBT) purposes, an employee includes a:

• current, future or past employee
• director of a company
• beneficiary of a trust who works in the business."

FBT seeks to tax the personal benefit received by an employee arising from the ‘private use’ of the car. For example, a car garaged at an employee’s home is treated as being available for private use, and is therefore subject to FBT.

The FBT calculation may vary slightly depending on the use case. The ATO provides guidance on the calculation methodology for different use cases here.

From 1 July 2022, Electric Cars will be exempt from FBT. This exemption applies to all-electric cars below the luxury car tax threshold for fuel-efficient vehicles ($84,916 in 2022-23). This will be reviewed three years from its inception.

This will not only save you money, but also simplify the administration (log book) and the accounting process. You can recognise the full expense of an electric car without the underlying FBT obligation attached.

Based on a $50,000 car value, a business stands to save up to $9,777 annually or $48.885 over five years from not having to pay FBT.

Over five years, due to potential savings from FBT, you could end up saving up to $39,455 by owning a Tesla Model 3 over a Toyota Camry Hybrid.

Click to expand

Many large organisations have set strong targets to reach net zero emissions by 2030 but have not developed a detailed road map to get there. These environmental targets incorporated as part of the broader Environmental, Social and Governance (ESG) strategy often needs to be balanced with the business case.

Transitioning to electric cars presents an opportunity to substantially reduce transport carbon emissions. The emissions reduction from an electric car can range from 30% to 100%, depending on the source of the energy. For example, if charged by onsite solar this could be 100% if charged from the grid 30% to 80% (depending on the state).

In addition to being environmentally superior, the FBT exemption now substantially improves the comparative economics of an electric car versus a petrol equivalent. For example, on a $50,000 vehicle potential savings are $9,777 per annum. If you’ve got a fleet of 1000, that equates to an annual savings of $9,777,000 per annum.

Electric cars now make business sense by the way of cost savings and minimising their environmental impact.

Need helping Electrifying your Fleet? ⚡

Novated leases are a popular option on many staff benefit programs. While they have the potential to provide savings for employees, the financial case has not always been straight-forward. There are many instances where employees would be better off with an outright purchase.

With the abolishment of FBT for electric cars, the financial case will most certainly be in favour of a novated lease compared to other options (we recommend you seek advice from a qualified accountant before you make this decision). It will no longer be a matter of ‘if’ there will be savings but ‘how much’ those savings will be. Read more on how electric cars work under a novated lease in our comprehensive Novated Lease guide.

As noted earlier only electric cars that fall under the luxury car tax (LCT) threshold of $84,916 for 2022-23 will be eligible. The LCT threshold typically includes; options, accessories, dealer delivery, and GST.