Electric vehicles (EVs) aren’t just a novelty in Australian business fleets anymore; they’re becoming a practical reality. But with this shift comes a new challenge: if your business provides electric vehicles or plug-in hybrid vehicles (PHEVs) to employees, for tax purposes you need to account for the home electricity used to charge the cars. How do you accurately calculate the costs of charging your business vehicles at employees’ homes without installing expensive separate meters or relying on guesswork?
What’s changed?
The ATO has updated its guidance (in Practical Compliance Guideline PCG 2024/2) to include plug-in hybrid electric vehicles, not just pure electric vehicles. This guidance update means businesses can now use the ATO’s simplified method to calculate home electricity costs for both types of vehicles. Previously, only zero-emission electric vehicles could use the guideline’s straightforward approach. Now, plug-in hybrids are covered under a new seven-step methodology that helps separate electric kilometres from petrol-powered kilometres.
The simplified approach
For pure electric vehicles, the calculation remains refreshingly simple: multiply your total annual kilometres by 4.2 cents per kilometre. This rate covers the electricity cost of home charging and gives you an ATO-accepted figure without complex calculations. For plug-in hybrids, the process involves a few more steps: calculate your actual petrol costs for the year; determine how many kilometres were driven on petrol using fuel consumption rates; subtract the petrol kilometres from the total kilometres to find the number of electric kilometres; and apply the 4.2 cents per kilometre rate to only the electric portion.
What you need to do
To use this method for the charging costs of your business’s vehicles, you’ll need to maintain proper records. Keep odometer readings at the start and end of each FBT year (1 April to 31 March) and retain evidence of home electricity expenses, such as power bills in the relevant employees’ names. The ATO provides transitional relief if you haven’t kept these records previously. For the 2024–2025 year, you can use reasonable estimates based on service records or other available information.
Why this matters for your business
This guidance simplifies FBT compliance and helps ensure you’re not paying more tax than necessary. If employees pay for home charging of business vehicles themselves, this amount can reduce the taxable fringe benefit value dollar for dollar. If your business reimburses employees for the charging costs, you can include the calculated amount in your FBT calculations. The method that now includes plug-in hybrid electric vehicles applies from 1 April 2024 for FBT purposes and 1 July 2024 for income tax purposes, so you can use it for your current year calculations.
Getting it right
While the ATO’s guideline makes these calculations easier, the rules around electric vehicle benefits can still be complex. The FBT treatment differs depending on whether your vehicles qualify for government exemptions, and plug-in hybrids lost their FBT exemption after March 2025.
Every business situation is unique, and mistakes could mean paying more FBT than necessary or failing to comply with requirements. Professional, tailored advice can help ensure you’re applying the method correctly and maximising available tax benefits for your business. Contact our office to discuss how these changes affect your business and to ensure you’re getting the best outcome from your electric vehicle fleet.
