The Australian Government’s Fringe Benefits Tax (FBT) exemption for certain electric vehicles (EVs) and plug-in hybrids (PHEVs) has cost taxpayers 10 times more than initially projected, according to a tax expert.
Speaking to the Australian Financial Review, Institute of Public Accountants senior tax adviser Tony Greco estimated the government is losing approximately $564 million annually on tax revenue due to the exemption.
In 2022, Treasury forecast the FBT exemption to cost $55 million this financial year, with Mr Greco’s estimation more than 10 times higher than the government figures.
It’s worth noting Mr Greco’s estimation is based on an average EV cost of $60,000, spread across 100,000 novated leases.
Launched in July 2022, the FBT exemption applies to EVs and PHEVs priced under the Luxury Car Tax (LCT) threshold for fuel efficient vehicles (currently $91,387), and purchased through novated leases.
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With the scheme, the government effectively takes on the cost of your employer’s fringe benefits tax, which would typically be passed on to you, bringing annual savings of up to five figures.
There’s no time limit on the scheme for EVs, however since its introduction there has been a deadline of April 1, 2025 for PHEVs, requiring eligible vehicles to be delivered by the end of this month.
According to data supplied to the publication by the National Automotive Leasing and Salary Packaging Association (NALSPA), more than 100,000 eligible novated leases have been taken out for EVs and PHEVs.
An earlier estimation by the Institute of Public Accountants pegged Treasury’s $55 million cost forecast on only 4700 EV owners taking up the exemption, AFR reports.
In the time since its introduction, EVs have gone from 1.8 per cent of new car sales to 7.4 per cent at the end of last year. Likewise, PHEV sales have risen from less than 1.0 per cent of the new-car market to almost 2.0 per cent.
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While this has been a positive result for the government’s carbon emissions cutting plans, it’s come at a cost to taxpayers.
Though the exemption for PHEVs will wrap up within a month – with buyers who don’t take delivery before the April 1 deadline having to pay the FBT if they take a novated lease – EV buyers will be able to make use of it for the foreseeable future.
The Electric Vehicle Council, Australia’s advocacy body for EVs, has continued its calls for the PHEV exemption to be extended, despite Mr Bowen previously including it to get the policy across the line.
“This electric car discount has been a hit with Australians, and we’re calling on all sides of politics to extend this policy during the upcoming federal election,” Electric Vehicle Council chief executive Julie Delvecchio said in a media statement.
“The discount is easing the cost of living by helping families save on transport costs and accelerating the shift to cleaner, more affordable cars.
“EVs don’t just benefit the individual driver, they also reduce the nation’s carbon emissions, cut air pollution which makes people sick, and unshackle Australia from our historic dependence on foreign oil.
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“The electric car discount simply allows people to put their hard earned money toward the lease of an electric vehicle. The immense benefits of this policy are chalk and cheese compared to the billions paid by the government for fuel subsidies each year.
“The facts show that over 52 per cent of electric cars are being bought in our outer suburbs and regions. Indeed we know the biggest uptake has been from everyday families in the suburbs struggling with the cost of living.
“We can already see that the FBT exemption is helping supply more EVs to the second-hand car market, so that more Australians can enjoy the benefits of driving an electric car. Low-income households will benefit enormously by switching to a second-hand EV, because they can avoid volatile petrol prices which we know are hurting families.”
It’s worth noting the Electric Vehicle Council aligns itself with overseas definitions of EVs, and counts PHEVs in its figures.
The NALSPA last month echoed its prior calls for the PHEV exemption’s extension.
“The FBT exemption is making BEVs and PHEVs more affordable for everyday working Australians,” said NALSPA chief executive Rohan Martin.
“Through a novated lease, the exemption typically saves employees around $5000 annually on an EV. The exemption means a $50,000 EV could cost the same or even less to lease over say four years than a $30,000 petrol car.
“The cost-of-living is hitting households hard, so finding ways to save on big purchases like a new vehicle is really important. While we’re encouraging motorists to take full advantage of the FBT exemption for PHEVs while it lasts, there are still other ways to save when buying a new car.
“After April 1, workers who want a PHEV can still benefit from a novated lease where they can acquire a new car using their pre-tax salary.
“A novated lease reduces your income tax and removes GST on the car’s purchase price and on running costs, like fuel and servicing. This can lead to significant savings, potentially amounting to thousands of dollars annually compared to purchasing a car outright or financing it with a loan.
“Additionally, the FBT exemption for fully electric vehicles will remain in place until at least 2027, providing even greater savings for those looking to fully transition to electric driving.”
