In the last 12 months, state and federal governments have introduced tax concessions designed to tip the balance in favour of electronic vehicles (EV) and plugin hybrids.

From 1 July 2022, employers do not pay Fringe Benefits Tax (FBT) on eligible electric cars and associated car expenses. For small business owners or employees that have access to salary packaging, this represents a substantial tax-saving opportunity if you are in the market for a new car for the business, family, or family associate. Because eligible EVs & Plugin Hybrids are exempt from FBT, there are no private use adjustments, the car can be for either business or private use, and the car expenses, including depreciation and finance costs, can be claimed in full for tax purposes. The car must be provided as part of a salary package to an employee or associate (including a family member). For most owners, the tax savings are equivalent to 5% to 10% of the cost of the car each year.

What is an eligible Electric Vehicle or Plugin Hybrid? 

• The car must be a zero or low-emissions vehicle – battery electric, hydrogen fuel cell, or plugin hybrid.
• The car must be held and used for the first time after 1 July 2022. Therefore, the tax savings apply to new and used cars if the vehicle was not registered until after 1 July 2022. 

"During my search for a car, the car industry was unaware of the importance of the 1 July 2022 first use date," said Garry Pinch, a partner at Accounting Professionals.

"They kept quizzing me why I wanted to know when the car was first registered. 

"Given the tax savings were between $2000 to $8000 each year, depending on whether the car was first registered after 1 July 2022, I would have thought it was material enough for the broader car industry to be aware."

• The car must not have been subject to the luxury car tax ie; for cars first purchased in the 2022/23 financial year, the GST-inclusive cost must be less than $84,916.

Some things to be wary of –

• If you buy a car privately, you most likely won't get a tax invoice and cannot claim the 10% GST credit back. 

"If you are considering buying an eligible EV, it might be best to buy from a dealer or a business/private owner that is registered for GST and will provide you a tax invoice because your employer can claim the GST credit and pass on the tax savings to you as part of the salary package," Pinch explains.

• Don't rely on others to determine whether the car you are looking at is eligible for the FBT concessions – do your homework or seek some advice from a tax expert.

• In NSW, electric vehicles and some low-emission petrol-electric hybrid vehicles are not subject to transfer duty & receive a concession on the motor vehicle tax. The concession is automatically applied when you register your car. The exemption from transfer duty makes purchasing used EVs & Plugin Hybrids an attractive proposition because you don't pay any duty irrespective of the value of the eligible car.

Other potential future benefits unless the law changes –

• Eligible cars first used after 1 July 2022 will always be eligible cars even if the original owner sells the car in the future. All the tax benefits are transferred to the new owner if they salary package the car through their business or employer. The transferability of the tax concessions could substantially enhance the resale value of post-1 July 2022 eligible cars compared to pre-1 July 2022 EVs and all cars that are not low-emission cars (petrol and non-plug-in hybrids). Note the FBT concession for Plug-in Hybrids winds down from 1 April 2025, so this could limit transferability of the benefit for Plug-in Hybrids.
• Battery repairs and replacements are fully tax deductible for eligible vehicles. So, when it is time to replace the battery, if the vehicle is still part of a salary packaging arrangement, owners of eligible vehicles will be able to get the 10% GST back on their battery replacement plus the tax savings on the full tax deduction for the cost (pre-GST) of the battery through their salary package.
• If you change employers or start a new business, you can transfer the eligible car and maintain the salary packaging benefits and related tax savings to the new employer if they also offer salary packaging.