What’s trending? ATO finalises guidance on calculating electricity costs for charging an electric vehicle at an employee’s or individual’s home
29 May 2024
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Earlier this year, the Australian Taxation Office (ATO) released Practical Compliance Guideline - PCG 2024/2 - Electric vehicle home charging rate - calculating electricity costs when a vehicle is charged at an employee's or individual's home (PCG 2024/2) which is its finalised guidance on the calculation methodology for electric vehicle home charging costs.
Broadly speaking, the finalised guidance remains largely unchanged from its draft iteration, and provides employers with a “shortcut” 4.2 cents-per-kilometre method rate for valuing the cost of electricity when an electric vehicle (EV) is charged at an employee’s or individual's home. There are a few nuances in the final version, which we have explored below.
PCG 2024/2 - Key changes
Where both commercial charging and home charging costs are incurred
Previously, where taxpayers incurred charging costs at both commercial charging stations as well as at home, they were required to make a choice on whether to use the short-cut methodology or apply the commercial charging station cost.
If the proportion of home charging compared to commercial charging can be accurately determined, PCG 2024/2 now allows the apportionment of home charging and the claim of any commercial charging costs (assuming relevant records are kept) to establish the total electricity costs. For example, if a 75% home charging percentage is determined and 10,000 kilometres have been travelled, the 7,500 kilometres can be claimed with the 4.20 cents per kilometre rate along with any commercial charging costs incurred.
However, much like the draft PCG, where the home charging percentage cannot be accurately determined, the ATO has allowed the cost of electricity to be either:
- the commercial charging station costs if the EV home charging rate is not used; or
- the EV home charging rate if all commercial charging station costs are disregarded.
Note that taxpayers will need to keep a record of the distance travelled by the vehicle using odometer records and/or records of the costs incurred at commercial charging stations.
Reimbursement of charging costs for a car benefit provided under a novated lease arrangement
Whilst not a technical change to the PCG parameters, the ATO has added an example to clarify that a reimbursement by the employer of electricity charging costs (utilising the 4.2 cents-per-kilometre method) for a car benefit provided under a novated lease arrangement would constitute an exempt car expense payment benefit.
Other considerations for zero or low emissions vehicles
The Treasury Laws Amendment (Electric Car Discount) Act 2022 (the Electric Car Discount Act) provided an important incentive to facilitate the increase of zero and low emission vehicles (ZLEVs) take-up in Australia, by providing a Fringe Benefits Tax (FBT) exemption for eligible vehicles. The Act has generated significant interest from businesses and employees and is seen as a positive measure.
There are several aspects that employers must consider when providing EVs to employees, including under salary packaging arrangements, with one of the most critical being how to calculate running costs of the vehicle – PCG 2024/2 seeks to address this.
As with all practical compliance guidelines, employers/individuals have the choice on whether to rely on the guideline or not. It is not compulsory. However, in our view, most individuals or employers are likely to adopt the PCG as, absent the PCG methodology, there is likely no accurate way to calculate the running costs relating to electricity charging, nor the recipient’s payment (if utilised to reduce a fringe benefit’s taxable value).
However, the major shortcoming of the PCG is the lack of guidance available on how to accurately calculate running costs or recipient’s payments for plug-in hybrids. Given the 4.2 cents per kilometre rate is an estimation or approximation at best, the ATO similarly could have considered an approximation for plug-in hybrids. Whilst there is, perhaps, more variability for hybrids in terms of the fuel source for ongoing consumption, a PCG rate and methodology would be useful as a baseline, noting again that it would not have been compulsory.
With the finalised PCG and Fact Sheet published since the start of last year, the ATO is continuing to provide guidance to account for the various tax implications of modern EV arrangements. We would encourage all employers who are in the process of transitioning to an electric fleet, or who have permitted novated leasing for the relevant FBT exempt ZLEVs, to consider the various tax implications to both the business and the individual. For more information, please see our deep dive on the FBT spectrum for electric car benefits.
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