As electric vehicles (EVs) become more popular, the need for a comprehensive charging infrastructure to service the vehicles is increasingly important. To encourage the development of such infrastructure, the Australian Tax Office (ATO) has introduced new legislation for electric vehicle home charging costs according to draft Practical Compliance Guidance PCG 2023/D1.
The legislation sets out guidelines for the tax implications of electric vehicle charging and includes requirements for record keeping.
Under the proposed legislation, the maximum cost that can be claimed for home charging an electric vehicle is 4.2 cents per kilometre (km). This rate is based on the average electricity cost in Australia and is intended to prevent excessive pricing for home EV charging. Taxpayers can use a range of methods to calculate their actual charging costs, such as calculating the electricity cost per kWh, or using a fixed-rate per km based on their home charging costs.
The EV home charging methodology outlined in this guideline is not applicable if a commercial charging station is utilised.
Who is eligible to rely on the draft Guidelines?
Both employers and individuals can use the proposed guideline in order to claim electricity costs as a deduction, as long as they can demonstrate that the cost was incurred for business purposes. If the vehicle is used for both business and personal use, only the portion of charging costs that relate to the business use can be claimed as a deduction.
Employers who follow the guideline may provide the employee or an associate with the ability to charge an electric vehicle using electricity at a residential premises where the cost of electricity directly attributable to charging the vehicle cannot be easily separated from the cost of running other electrical appliances in the home.
As part of their Fringe Benefits Tax (FBT) obligations, the employer must calculate the taxable value for one or more of these benefits: car fringe benefit, residual fringe benefit or may pay for expenses related to the vehicle resulting in a car expense payment benefit.
Individuals who can use the proposed guideline to determine the cost of electricity incurred in charging their electric vehicle at home are those who meet the following requirements:
- use electric vehicles that emit zero-emissions for their income-earning activities;
- incur electricity costs while charging their electric vehicle at their residential premises;
- maintain accurate records of these expenses for the relevant Financial Year.
Where the vehicle is not a zero-emission vehicle like plug-in hybrid vehicle, the guidelines are not applicable.
How to Calculate the Cost for EV
The rate for the FBT tax year or income year commencing on or after 1 April 2022 is 4.2 cents per kilometre. This EV home charging rate is multiplied by the total number of relevant kilometres travelled by the electric vehicle (not a hybrid) in the relevant income year or FBT year.
For example:
If the taxpayer drove 10,000 kilometres in a year, the EV home charging cost would be $420. Then the business use percentage would be applied to determine the business deduction.
Record Keeping
Besides meeting the criteria for claiming a deduction for electric vehicle charging costs, taxpayers are also obligated to maintain accurate records for their expenses. These records must include the following:
- detailed information about the distance travelled for business or work-related purposes,
- 12-week logbook to establish the proportion of private and business travel,
- electricity bill for the residential premises to demonstrate the expenses incurred for charging the electric vehicle
The records can be kept electrically or in paper form, as long as they are readily accessible and can be provided to the ATO upon request.
Overall, the draft guidelines provide clarity on what can be claimed as a deduction and the record-keeping requirements for electric vehicle home charging costs. This ensures that taxpayers are compliant with tax laws and can maximise the benefits of owning an electric vehicle for work or business purposes.
For More Information
For more information on proposed guidelines for electric vehicle home charging as its released, please contact the Archer Gowland Redshaw office on (07) 3002 2699 | info@agredshaw.com.au.
