Home > Updates > Fringe Benefit Tax: EVs, hybrids and work-related vehicles
There has been a lot of discussion about the recently announced government Clean Car Discount scheme, with varying opinions on how effective this will be in driving behaviour changes. The scheme consists of two parts – a rebate on purchases of new or imported electric vehicles (EVs) and hybrid vehicles (PHEVs), and a levy on the purchase of vehicles with higher CO2 emission levels.
One observation made by many, including farmers and trades people, is that the choices are not so easy for the types of vehicles they use in their day-to-day work. There are limited EV and PHEV options available that are suitable to meet the needs of these drivers.
This choice can be further complicated for a taxpayer relying on the work-related vehicle exemption to Fringe Benefit Tax (FBT) rules. The work-related vehicle exemption only applies to certain types of vehicles, such as utes or vans. It does not generally apply to sedans or similar passenger cars. Herein lies the problem – EV or PHEV utes are not readily available in New Zealand, so a business choosing to upgrade to an EV or PHEV is likely to choose a vehicle that doesn’t qualify as a work-related vehicle.
A double cab ute that meets all the requirements to be a work-related vehicle is most likely to be one of the higher CO2 emission vehicles, and therefore subject to an additional cost at purchase, while an SUV type hybrid, (eligible for a rebate under the new scheme) will not meet the existing work-related vehicle requirements, meaning it will potentially be subject to an extra cost in the form of FBT. This additional cost needs to be weighed against the potential benefits of choosing an EV or SUV as it is not necessarily a cost that will be considered prior to purchase. The assumption may be that you are simply replacing what you previously had, and it is being used in the same way, so there should be no changes – right? Unfortunately not.
In some cases, both vehicles could be viable options for the use in the business, but the net effect of the new scheme is not enough to make the hybrid a more attractive option, particularly when the additional FBT is taken into account. We did a rough calculation showing what the outcomes would be for two different options, using the rebate / levy figures published by Waka Kotahi, assuming the vehicle is owned for three years and ignoring running costs.
*Calculated using new default rate of 63.69% and assuming private use is limited to home to work travel
Our calculations show that an EV or PHEV is markedly more expensive once FBT is taken into account.
While there are options available for minimising FBT on the Outlander, such as limiting private use and doing annual adjustments attributing the benefit, the likely FBT cost will still be several thousand dollars per year. This means the Hilux is still likely to provide an economic advantage over time.
Recent comments made by Revenue Minister David Parker indicate an Inland Revenue crackdown is coming for taxpayers relying on the work-related vehicle exemption for FBT.
Despite some public perception that this is a ‘blanket’ exemption for anyone in business to claim the full costs of their double cab ute, van or other goods vehicle, the actual FBT exemption is far more limited than this.
The exemption only applies for days when the private use of the vehicle is limited to home to work travel, or private use that is ‘incidental’ to the work use. It is okay to stop on the way home from work to pick up the kids from sports practice but going out at the weekend to take them to their game will not be ‘incidental’ private use, and FBT would be payable for that day.
In addition to this there are requirements about how any limitation on private use should be communicated to employees, and what steps should be taken to monitor their compliance with that limitation. There are also specific comments about the signwriting requirement in relation to the vehicle.
In light of the Minister’s comments, now may be a good time to check that you are getting this right. Please contact us if you would like further advice.