Australian federal legislation to exempt electric vehicles from benefits tax (FBT) coming through parliament soon. Experts discuss the impact this will have on fleet composition. I turned to Nathan Gore-Brown, a Queensland-based industry consultant, for his opinion. Bean counters – sharpen your pencils!
Nathan already has a car on one renewed lease. He estimates he will save A$2,000 to A$3,000 a year under the new regime. His Model Y costs him A$900 a month. This includes maintenance and tires, but not electricity for the next 5 years. The new tax benefit will yield approximately 25-30% savings.
The new legislation will make electric vehicles cheaper, but Australia is a market with limited supply. He expects wait times for new vehicles owned by a company but used privately to increase.
Nathan expects those who will benefit from the new legislation to fall into two groups. First, the beneficiaries will be drivers who take out a lease through their employer to get a tax break by driving an electric car, or who sacrifice a paycheck to package an electric car. The other group consists of the employees who receive an EV at the discretion of their employer. For example, a representative can get an EV. The cost reduction to the employer can be as much as 20% of the cost of the vehicle (so it could really just be the employer benefiting financially). However, there may be some unintended tax costs for the employee. The employee may be penalized for receiving additional income in the form of a vehicle. These matters are still being worked out. It is hoped that the “Tax Gremlins” will be resolved by the end of the next financial year, with a patch to the legislation in the October 2023 budget.
Some entities, such as municipalities, may receive savings, but those companies that are already maximizing their tax savings may not see much improvement in their bottom line. The bean counters are still sharpening their pencils.
Nathan believes the fuel efficiency standards currently being considered by the federal government will also help.
The people who will benefit most from the new legislation are those who can pay an EV. Here, however, we discover another blockage: some salary package providers refuse to include EVs in their offerings. As these issues “nibble at their playground lunches,” major corporations may be motivated to lobby for more changes to the tax code.
Andrew Kerr from i.e. edge added: “the biggest beneficiaries will be employers and employees who can purchase vehicles on an extended lease. By making electric vehicles FBT-free, all ownership and operating costs are now paid in pre-tax dollars, even if the vehicle is used little or not for business.
So, in real terms, while an employee who buys an internal combustion engine car under a new lease with a purchase price of $74,000 will benefit about $3,800 a year, a PHEV or BEV with a purchase price of $74,000 will now benefit about $9,800 a year, making the choice very easy.
“From a commercial vehicle fleet point of view, for business vehicles, the decision to purchase electric cars and charging them has become a lot easier as charging stations can now be installed at the workplace, and while it has yet to be clarified, it seems that the home charger can be installed in the employee’s home as an FBT-free release. All this equates to a cost and administration saving for the organization and a cost and convenience benefit for the employee.
“This new legislation will clearly boost the number of new BEVs and PHEVs, and it will also create a secondary market as cars come off lease in 1, 2 and 3 years, making affordable pre-owned electric vehicles available for years to come. ”
Nathan advises on fleet purchases to the government and industry and has found several roadblocks to a massive increase in the fleet. Some fleet managers do not want to buy from unknown/new brands. Others object to cars bought in China. Some just think Teslas are too “out there” to be considered. Add to that the fact that EVs from established brands are available in Australia, but only in small numbers and at higher prices, and you’ve got some serious problems to solve.
Ultimately, my humble opinion is that decisions are made based on financial gain. The profit motive will ultimately win.
I told Nathan I was excited about the FBT changes and the possibility of seeing even more electric vehicles on Australian roads. He told me I’m always excited! He then updated his projections for electric vehicle penetration in the Australian market. He expects that 2022 will average around 4% penetration. This is with the monthly peak of 8% in September 2022 alone — caused by the landing of the Model Y. December is also expected to reach this peak. 4% in 2022 is double what it was in 2021 and he expects it to likely double again in 2023.
As bean growers sharpen their pencils and tax lawyers scramble over the new rules, automakers will hopefully review their export numbers and EVs will pour into the country down under.
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