ATO finalises its guidance on calculating electric vehicle home charging costs

The surge in electric vehicle (EV) adoption, fueled by their favourable fringe benefits tax (FBT) treatment, presents a new challenge for both individuals and employers in managing their tax obligations. One complexity that has emerged is calculating the cost of charging EVs at home; information that is not usually separately identifiable from the household’s total electricity consumption. The Australian Taxation Office (ATO) has now finalised the Practical Compliance Guideline (PCG) 2024/2, addressing this issue by providing taxpayers with a practical method to calculate their home charging electricity costs.

For calculating the cost of charging the EV at home, the guideline provides taxpayers with the option of either using a rate of 4.20 cents per kilometre (the EV Home Charging Rate) or the much more involved option of calculating the actual cost incurred. Taxpayers must use the same method for the entire year, however can choose different methods for each car or in subsequent years.

The PCG only applies to zero-emissions vehicles that are solely fuelled by electric power. It does not apply to plug-in hybrid vehicles that use a combination of petrol and electricity, nor does it apply to electric motorcycles or scooters.

The PCG applies retrospectively for Fringe Benefits Tax (FBT) years commencing on or after 1 April 2022 and Income Tax years from 1 July 2022, impacting both employers and individual taxpayers.

Employers

Despite the FBT exemption available for eligible EVs, employers still have an obligation to calculate the taxable value of the benefit provided so they can report the employee’s reportable fringe benefit amount (RFBA).

Additionally, any amounts paid by the employee towards the EV, including home charging costs, will reduce the taxable fringe benefit or the RFBA.

Therefore, the PCG is relevant for employers who have provided an employee with any of the following specifically relating to an EV:

• Car fringe benefit – Including through a novated lease arrangement
• Expense payment fringe benefit – Such as reimbursements for EV home charging costs
• Residual fringe benefit – private usage of EVs that are designed to carry a load of one tonne or more or nine or more passengers

Individual taxpayers

The PCG will apply to individuals who use their EVs to gain or produce assessable income and incur electricity costs to charge their EVs at home.

Individuals with EVs can now use the EV Home Charging Rate when calculating the deduction available for work-related car expenditure under the logbook method. The calculated cost of charging the EV at home is then included with all other car expenses incurred during the year (e.g. insurance, registration and repairs and maintenance, depreciation) before apportioning the total for the work-related usage. The guideline does not apply to those claiming the cents per kilometre method.

Individuals using the PCG method must keep odometer records and a home electricity bill to show evidence that they have incurred electricity costs during the year. This is in addition to the usual record-keeping requirements under the logbook method, such as holding a valid logbook and keeping written evidence of all costs incurred.

Complexities in calculating the home charging kilometres

In many circumstances, EVs won’t just be charged at home. They will also be charged at either free or paid commercial charging stations. The PCG acknowledges this complexity and addresses it by providing taxpayers with an approach to determining the charging costs in scenarios where the home charging percentage can and can’t be accurately determined.

1. Home charging percentage can be accurately determined

Some EVs can report the percentage of the vehicle’s total charge from different types of charging locations. In this case, taxpayers can calculate their home charging costs using this data, applying the EV Home Charging Rate to the portion of kilometres that were charged at home.

2. Home charging percentage cannot be accurately determined

Where the EV doesn’t have the capability to report this percentage, and the taxpayer has incurred costs for charging both at commercial charging stations and at home, taxpayers can either:

• Use the EV Home Charging Rate for all kilometres travelled and disregard any commercial charging station costs paid during the period or
• Use only the costs incurred at commercial charging stations and disregard the PCG’s method of calculating the home electricity costs.

Initially released in draft form in March 2023, the PCG’s recent finalisation comes right in time for the end of the 2024 FBT year. It provides a welcomed practical approach for taxpayers needing to determine their own or their employees’ home charging costs.

Although this simplifies the compliance burden for taxpayers, those who rely on the PCG should ensure that they understand and correctly apply the method while maintaining the required records. If you are an individual who uses their EV for work or an employer who needs assistance with their fringe benefits tax obligations, please get in touch with your Mazars advisor or one of our experts below for more guidance.

Author: Adrian Citton

Published: 16/02/2024

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