Electric vehicle FBT draft laws riddled with issues: CPA Australia

CPA Australia has lodged its submission in response to the draft legislation released by the government, which explained how the fringe benefit tax (FBT) exemption for electric vehicles (EVs) will be trimmed in three phases from 2027 to 2029.

The transition period will span from 1 April 2027 to 31 March 2029.

Eligible electric cars that are provided to employees by their employers under commitments made before 1 April 2027 can be exempt from FBT (from 1 July 2022 to 31 March 2027).

EVs that are provided before 1 April 2029 can access either a 100 per cent or 25 per cent FBT discount (from 1 April 2027 to 31 March 2029).

However, EVs that are provided under commitments made on or after 1 April 2029 can only access a 25 per cent FBT discount.

In its submission, CPA Australia said the exposure draft should be further refined to ensure the proposed FBT tax treatment operates consistently, equitably, and with minimal compliance burden.

“In particular, the exposure draft should provide clearer transitional rules, align thresholds and indexation settings, preserve access to concessions where commercial commitments have been made in good faith, and ensure the 25 per cent discount applies consistently across valuation methods,” the submission said.

“Additional clarification is also required to prevent reportable fringe benefits amounts and payroll reporting obligations from producing unintended adverse outcomes for employers and employees.”

CPA Australia specifically addressed issues around the grandfathering definition and “commitment” triggers in the exposure draft in relation to event versus binding agreement.

It called for the government to clarify the grandfathering and transitional rules by defining when a relevant commitment is made, and recognise early commercial milestones such as vehicle orders or approved salary sacrifice arrangements.

“Drafting grandfathering provisions around a pre-existing lease or commitment made prior to 1 April 2029 introduces significant tax uncertainty,” the submission said.

While noting that the exposure draft heavily relies on the concept of “commitment to provide a vehicle” made before 1 April 2029, CPA Australia said a formal financial commitment is typically not executed when the order is placed because novated leases involve three separate parties (dealer, employer, and financier).

In addition, CPA Australia said that if “commitment” is drafted narrowly (where delivery is required before 1 April 2029), severe supply chain delays could deny taxpayers expected 100 per cent exemptions “through no fault of their own”.

On the other hand, a loose approach to the drafting (for example, expression of intent or initial quote) could create aggressive tax planning opportunities for pre-deadline lease arrangements, it warned.

As such, the accounting body recommended that grandfathering and transitional rules be refined to eliminate the “commitment” uncertainty.

It suggested defining commitment to include the earliest commercial milestone and early-stage operational steps.

“For example, ‘a commitment to provide an electric car is deemed to have been made prior to 1 April 2029 if, before that date, a binding vehicle order has been placed with a motor vehicle dealer, or a salary sacrifice profile has been approved in writing by the employer, notwithstanding that formal financial settlement or vehicle delivery occurs on or after 1 April 2029’,” CPA Australia said.

The submission also suggested introducing a “delivery safe harbour” window or a grace period to accommodate unexpected dealer delays and bridge the gap between the commitment and the formal lease start date.

“If a vehicle order or preliminary salary packaging agreement is signed before 1 April 2029, allow a 6 to 12-month safe harbour window (e.g., until 1 October 2029 or 1 April 2030) for the vehicle to be delivered and the financial lease to be settled without losing the 100 per cent FBT exemption,” the submission said.

In addition, it urged that the provisions must explicitly address what would happen during lease novation when changing employers, lease extensions, or refinancing post-31 March 2029.

It noted that under current tax rules, refinancing or re-novating often triggers a new contract.

“Without careful drafting, an employee changing jobs post-2029 could unintentionally lose grandfathered 100 per cent exemption status,” the submission said.