Just in time for the Fringe Benefits Tax (FBT) year that started on 1 April, the Australian Taxation Office (ATO) has released new details on electric vehicles.

The FBT exemption for electric cars

If your employer provides you with the use of a car that is classified as a zero or low emissions vehicle there is an FBT exemption that can potentially apply to the employer from 1 July 2022, regardless of whether the benefit is provided in connection with a salary sacrifice arrangement or not. The FBT exemption should normally apply where:

• The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and
• The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn’t made available to employees until 1 July 2022 or later.

The exemption also includes associated benefits such as:

• Registration
• Insurance
• Repairs or maintenance, and
• Fuel, including electricity to charge and run the vehicle.

But, it does not include a charging station (see How do the tax rules apply to home charging units?).
While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.

Who the FBT exemption does not apply to

By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders are not employees and cannot access the exemption personally.
If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity).

How do the tax rules apply to home charging units?

The ATO has confirmed that charging stations don’t fall within the scope of the FBT exemption for electric cars. This means that FBT could be triggered if an employer provides a charging unit to an employee.
If an employee purchases a home charging unit then it might be possible to claim depreciation deductions for the cost of the unit over a number of income years if the unit is used to charge a vehicle that is used for income producing purposes. However, if an employee is only using the vehicle for private purposes then the cost of the charging unit is a private expense and not deductible.

What about the cost of electricity?

A friend of mine travels a lot for work and used to rack up large travel expenses…right up until he switched to an electric vehicle. Now it costs him 3 cents per km in electricity.
Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km for running costs for EVs provided to an employee (from 1 April 2022 for FBT and 1 July 2022 for income tax).

 
 
If you use this rate, you cannot also claim any of the costs associated with costs incurred at commercial charging stations. It is one or the other, not both.
You also have the option of using actual electricity costs if you can calculate them accurately.

Queensland backs down on Australia wide land tax assessment

The Queensland Government has backed away from an amendment that would have seen the land tax rate for investment property in Queensland assessed on the value of the investor’s Australia wide land holdings from 1 July 2023, not just the value of their Queensland property.

The amendment passed the Queensland Parliament and became law on 30 June 2022. The amendment would see the value of all of the landholder’s Australian investment property assessed, the value of Queensland land tax calculated on taxable Australian wide investments, then apportioned to the Queensland portion of the land. The amendment requires the landholder to declare their interstate landholdings and data from other sources to verify the landholdings. The end result is many investors being tipped into a higher land tax rate.

The Bill states, “The land tax reform is intended to make Queensland’s land tax system fairer by addressing an inequity which can result in a landholder with all of their landholdings in Queensland paying more land tax than a landholder with a similar value of landholdings spread across jurisdictions.”

Following the National Cabinet Meeting on 30 September, Premier Palaszczuk rescinded the reform as it relied on the “goodwill of other states, and if we can't get that additional information, I will put that aside.”

Stamp duty or an annual property tax for NSW first home buyers?

First home buyers purchasing property in NSW of up to $1.5m will have a choice of paying stamp duty or an annual property tax from 16 January 2023.

The annual property tax payments will be based on the land value of the purchased property. The property tax rates for 2022-23 are:

• $400 plus 0.3% of land value for properties whose owners live in them
• $1,500 plus 1.1% of land value for investment properties.

Property tax assessments will be issued annually to home buyers who take the annual property tax option. As an example, a first buyer purchasing a $1.2m NSW property with a land tax value of $720,000, could pay stamp duty of $50,875 or opt to pay the annual property tax ($2,560 for 2022-23). The property tax rates will be indexed annually.

Eligible first home buyers who sign a contract of purchase on or after 16 January 2023 will be eligible to opt into the property tax. If the property tax option is selected, first home buyers must move into the property within 12 months of purchase and live in it continuously for at least 6 months.

The annual property tax is only applicable to the purchaser. If the property is sold, the property tax does not apply to subsequent purchasers. For eligibility details, see First Home Buyer Choice on the NSW Government website.

Legislation enabling the property tax is expected before the NSW Parliament this month. If passed, eligible first home buyers who sign a contract of purchase between the passage of the legislation and 15 January 2023 will be eligible to opt into the property tax. These purchasers will pay land stamp duty but will be able to apply for and receive a refund of that duty if they opt into property tax.

In September, amid a climate of startling interest rates, UK Chancellor Kwasi Kwarteng announced a series of tax cuts, including the reduction of the top personal income tax rate that applies to those earning more than £150,000 from 45% to 40%. Just ten days later, following market turmoil that saw the British Pound drop at one point to a low of $1.035 USD, its lowest level since 1985, the decision was reversed calling the cuts “a massive distraction.”

In Australia, the 2018-19 Budget introduced the Personal Income Tax Plan. The plan implemented three stages of income tax cuts over seven years that will, by 2024-25, simplify the tax brackets and enable taxpayers to earn up to $200,000 before paying a new top marginal tax rate of 45%. Stages of the plan, bringing relief for low and middle income earners, were brought forward in the 2019-20 Budget and again in 2020-21.

Labor’s pre-election Lower Taxes policy states, “An Albanese Labor Government will deliver tax relief for more than 9 million Australians through the legislated tax cuts that benefit everyone with incomes above $45,000.” But this month, the Treasurer has subtly changed the narrative from simply “our policy has not changed on stage three tax cuts” to “We do need to ensure that spending in the Budget, particularly in these uncertain global times, is geared toward what's affordable and sustainable and responsible and sufficiently targeted. I think that's one of the lessons from the UK.”

The public appeal of repealing the final stage three tax cuts is understandable. Back in 2018-19 when the plan was first introduced, the economy was in surplus and Australia was yet to feel the effects of a global pandemic, environmental extremities, and the Russian invasion of Ukraine. The tax cuts forego around $240bn of tax revenue over the next 10 years, and because it is percentage based, favours high income earners. The public policy think tank, the Grattan Institute, previously warned that if the government progressed with the stage three cuts “Australia’s income tax system will be less progressive than it’s been since the 1950s”.

Conversely, the rationale for reforming the current personal income tax regime where the highest marginal tax rate applies from around 2.5 times average full-time earnings (compared to around 4 times in Canada and 8 times in the US), is also understandable. When it comes to international competitiveness, New Zealand’s top marginal tax rate is 33% (from $180,000) and Singapore’s is 22%, increasing to 24% in 2023-24. If implemented, stage 3 of the income tax plan would see around 95% of taxpayers paying a marginal tax rate of 30% or less.

The 1 July 2024 tax cuts

Stage three of the Personal Income Tax Plan is legislated to take effect from 1 July 2024.

What the tax stats say

Personal income and withholding tax represents around 48% of the annual Commonwealth tax collections. Company tax, by comparison, is around 16%, and the goods and services tax (GST) just under 15% of total tax revenue collected.

Australia has a progressive personal tax system. That is, those with higher incomes pay not only a higher amount of tax, but a higher proportion of their income in tax. As a result, the 3.6% of taxpayers with taxable incomes of over $180,000 pay 31.6% of the total.

The value of cryptocurrency assets inside Australian self managed superannuation funds (SMSFs) increased by 589.9% ($1.17bn) between June 2019 and June 2022, according to the latest ATO statistics.

While cryptocurrency is a relatively small asset class at only 0.16% of the $837bn held in SMSFs, it is a growing asset class, larger than collectibles and personal use assets, and overseas property.

Smaller funds, with an asset value below $200,000, are more likely to have a larger proportion of their value in cryptocurrency.

ASIC warns of SMSF cryptocurrency scams

Earlier this year, the Australian Securities and Investments Commission (ASIC) issued a warning on an increase in marketing encouraging Australians to switch from retail superannuation funds to SMSFs so they can invest in ‘high return’ portfolios. The regulator states that crypto-assets are a high risk and speculative investment and best practice is to seek advice from a licensed financial adviser before agreeing to transfer superannuation out of a regulated fund into an SMSF.

An example of one of these schemes was A One Multi Services Pty Ltd that was shut down by ASIC late last year. The company promoted a scheme encouraging investors to roll their superannuation into an SMSF, then for the SMSF to loan money to A One Multi to generate “returns of between 10% and 20% on the investment and perhaps as high as 26%.” Over 60 SMSFs transferred $25 million into A One Multi’s accounts between January 2019 and June 2021. The money “invested” for the clients, between $7 million to $22 million of Bitcoin, was held in the name of one of the directors. An additional $5.7m was used by the directors to acquire property and luxury cars.

Investing in crypto

Trustees are free to invest in assets that meet the requirements of the fund and comply with the regulatory requirements:

• Trust Deed - must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check.

Investment strategy - With cryptocurrency’s high volatility and risks, there must be clearly articulated information in the Investment Strategy. That is, it must articulate the trustees’ plan for making, holding and realising assets in a in a way that is consistent with the retirement goals of members being mindful of the member’s individual circumstances.

• Separation of assets – cryptocurrency assets must be held in a wallet in the name of the SMSF and the IP address is provided to the SMSF auditors to verify the transactions (against the fund bank account). Problems often arise when a wallet (in the name of the SMSF) is connected to a personal credit card to acquire cryptocurrency. In these cases, the payment may be considered as either a contribution or a loan to the SMSF.
• Sole purpose test - Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.