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Tax changes to address lack of affordable EVs for all consumers

More affordable, lower priced second hand electric vehicles (EVs) are not available to consumers in Australia.  Such vehicles are generally supplied by business rolling over their fleets every three to four years.

Business buyers account for over 40% of new light vehicle sales, but their uptake of EVs is shockingly low at a mere 488 EVs in 2020 or 0.02% of passenger cars and light SUVs, compared to the European average of 57% of EVs acquired by business.  A combination of EVs high-cost price, tax disincentives and lack of workplace charging infrastructure, means battery electric vehicles are uncompetitive for business fleets.

The report prepared by Griffith University’s Dr Anna Mortimore, a tax law expert who led the research with Dr Diane Kraal  said they had undertaken the study to investigate how tax changes can accelerate the uptake of battery electric vehicles within business fleets, supported by home charging from the employee’s place of residence.

Tax changes targeting business fleet buyers have been used successfully around the world, particularly in Europe. The highest is in the Netherlands, where 73% uptake of Battery Electric Vehicles (BEV) are business buyers, the United Kingdom at 67%, Germany 49% and Norway at 34%.  After three to four years, these company BEVs are rolled over into the second-hand market, which are cheaper and more affordable to all consumers and not just for high end buyers. In Australia consumers cannot rely on more affordable lower priced business fleet EVs being rolled over into the secondhand market any time soon.   The Australian Government’s own environmental targets for 89% of new car sales being EVs by 2030, are unlikely to be met without electrifying our business fleets.

Why are business fleets not buying EVs?

To understand why business fleets are not buying electric vehicles, business fleet managers were interviewed across government, ASX listed companies, and private companies to understand their attitudes, barriers and enablers to adopting home charging of business fleets.

Fleet managers concern for increasing the number of BEVs ranged from: BEVs are not cost competitive; limited choice of ‘fit for purpose’ BEVs; and high cost and practicalities in setting up workplace charging infrastructure.  Fleet managers explained they evaluate new car models on the total cost of ownership (TCO) which includes the purchase, running costs and resale value. 

A case study of Hyundai’s mid-range SUV Kona found the battery-electric model has a TCO of $66,337, while the petrol Kona cost $31,329. In other words, a company would pay an additional $35,008 for an electric Kona, or more than the price of a second car.

Not all business fleets return to base

In a 2020 business fleet survey, 47% of business fleets are home garaged and could transition to BEVs.  Home charging at the employees’ home would need to be considered because such work fleet BEVs would not return to base for charging when the fleet BEVs can be home charged.

However, home charging attracts fringe benefits tax.  Modelling indicates, fleet manager’s choosing the Kona BEV, will pay an annual FBT of $12,016. in addition to the up-front cost gap of $35,008, compared to the annual FBT of $5,878 for the Kona ICEV.

Proposed tax changes

The findings from the case studies and TCO modelling indicates tax changes are required to accelerate business fleet uptake of BEVs and encourage home charging.  You can see all 17 of our recommendations here, divided between short-term changes that could be put in place immediately, and more substantial long-term alterations to our tax code that require legislation.

Australian Government will exempt EVs from fringe benefits tax

From 1 July 2022, the Australian Government will exempt EVs under the luxury car tax threshold ($84,916 for 2022-23 tax year) from the fringe benefits tax (FBT). 

Exempting the FBT may remove the additional tax but will not address the wide cost gap of $35,008 between the paired Kona’s.  Modelling shows, additional tax changes will be required to reduce this cost gap and make the BEV more competitive to the combustion fueled vehicle.

Some of the recommended tax changes include FBT exemption and instant asset write off for ‘home charging’ and smart charger, and tax deductions for travel between work and home for charging, and support for home charging through subsidies or rebates. 

These tax changes will provide a path to addressing the barrier of low levels of workplace charging infrastructure, de-penalise BEVs being home charged, lead to smart chargers bypassing peak tariff and grid congestion and facilitate higher uptake of BEVs by becoming more widely accepted within organizations that will lead to more affordable BEVs becoming available to consumers when rolled over into the secondhand market.

Author

Dr. Anna MortimoreDr Anna Mortimore is a Lecturer in the Department of Accounting, Finance and Economics in the Griffith Business School specialising in taxation. She is a member of the Institute of Chartered Accountants in Australia and a Chartered Tax Adviser with The Tax Institute. She holds a Bachelor of Commerce (UQ), a Masters of Business (QUT), a Master of Laws (LLM) (Bond) University, and a PhD (MU). Anna recently gained her PhD from her dissertation entitled: “The use of economic instruments in managing the environmental externalities of road transport.”

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