With the increasing demand for electric vehicles (EVs), novated leasing has undergone several changes to make it easier and more affordable for employees to acquire an EV. The Electric Car Discount which is effective from the 1st July 2022 will see EV’s and plug-in hybrid cars exempt from Fringe Benefits Tax (FBT).
This means that you can pay for the lease payments and all of its running costs out of your salary before you have been taxed. This is big news, as traditionally the deductions prior to these changes would be broken up into; pre-tax and a post-tax deduction, however this now all pre-tax! This means that an employee earning $125,000, purchasing a Tesla Model Y, over a 5 year term could save $39,629 in tax over the term and bring the cost down to only $224 per week (including charging, maintenance, tyres, registration & insurance).
How Does It Work?
It works in the same way a regular novated lease would, you choose your preferred EV or plug-in hybrid vehicle for a chosen lease period (1-5 years). From there your leasing provider can help put a budget in place to cover expenses like charging, tyres, maintenance, registration and insurance. Your lease payments and running costs are broken down into one simple pre-tax deduction to come out of your regular salary. This is where the benefit lies, as this pre-tax deduction reduces your taxable income and in turn reduces how much tax is withheld from each pay cycle. In addition to the income tax savings, you save on GST on all of your lease payments and running costs.
Considerations
To be eligible for the Electric Car Discount there a few things to take into account;
- The first time the car was held and used is on or after the 1st July 2022
- The vehicle is battery electric, hydrogen fuel cell electric or plug-in hybrid
- Under the Luxury Car Tax Threshold ($84,916 including GST)
Tax Savings In Action
To better understand how these tax changes could work in practice, lets look at the below example;
- Annual salary $80,000 per year
- Tesla Model 3 ($64,186 drive away)
- 4 year term
- 15,000 kilometres per year
- Includes a budget for charging, maintenance, tyres, registration & insurance
| Savings comparison | ||
|---|---|---|
| Car Loan | Novated lease | |
| Drive away price | $64,186 | $64,186 |
| Gross salary | $80,000 | $80,000 |
| Novated lease pre-tax deduction | 0 | $17,122.56 |
| Taxable income | $80,000 | $62,877.44 |
| PAYG Income tax | $18,067 | $12,159.72 |
| Net income | $61,933 | $50,717.72 |
| After tax vehicle cost | $17,122.56 | $0 |
| GST paid | $1,712.36 | $0 |
| Take home pay | $43,098.08 | $50,717.72 |
| Estimated yearly tax savings | $7,619.64 | |
| Total tax saved | $30,478.56 |
With these changes, EV’s have never been more affordable and with more and more EV’s coming into the market there really is a option at varying price points.
To find out more information on these changes, request a call back from one of our novated leasing experts
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