Tax Breaks and Incentives: Small Business Wins with Novated EV Subscriptions

Novated leasing is a familiar concept known for its mutual advantages for employers and employees. However, a new wave in the Australian market is emerging: novated electric vehicle (EV) subscriptions. In this article, we delve into the realm of novated EV subscriptions, exploring their essence and elucidating how businesses can leverage tax breaks and incentives.

Understanding Novated EV Subscriptions

Before dissecting the fiscal advantages and perks, let’s elucidate what a Novated EV Subscription entails. Unlike traditional novated leasing, a subscription involves a shorter commitment for an electric vehicle, typically spanning 6 to 12 months. This innovative employee benefit allows team members to access an electric vehicle of their choice using pre-tax income, without long-term obligations or financial applications. Karmo’s novated EV Subscription streamlines this process, ensuring a hassle-free experience for both businesses and employees.

Employer Benefits

While novated subscriptions inherently offer substantial savings for employees through reduced income tax, the advantages extend significantly to employers in both financial and operational aspects.

Fringe Tax Benefits (FTB) Exemption on EV Novated Subscriptions

In line with the Australian Government’s push to encourage EV adoption, the introduction of the EV Discount has resulted in the Australian Taxation Office exempting employers from paying the Fringe Benefits Tax (usually at 47%) on the costs associated with providing electric cars, including running expenses, to employees. To qualify for FBT savings, the electric vehicle value must fall below the Luxury Tax Threshold of $89,332.

The beauty of a novated EV subscription lies in reaping the benefits of this FBT exemption, offering substantial tax savings for employers.

Payroll Tax Reduction

As a portion of the employee’s pre-tax salary contributes to covering the novated subscription, the employer pays a reduced salary as per the salary sacrifice agreement. This translates to proportionally reduced payroll taxes for the business.

Streamlined Invoicing for Payroll

Karmo’s subscription service presents a comprehensive weekly price for a vehicle, excluding recharging costs. This streamlined invoicing spares the payroll and finance departments the hassle of multiple invoices, among other conveniences novated subscriptions bring forth.

No Long-Term Commitment

Unlike leasing, novated subscriptions offer peace of mind to both employers and employees. There’s no enduring commitment, providing flexibility to employees who may want to transition from the organisation or seek a change. Karmo’s model offers flexibility and upgrades to new cars every 6-9 months, ensuring employees are consistently driving new vehicles.

The Process of Salary Sacrificing a Car

Salary sacrificing a car via subscription involves an arrangement between the business, employee, vehicle supplier and package manager. This arrangement, like a novated lease, allocates a segment of the employee’s pre-tax salary and is directed toward the subscription service and associated car expenses. It may sound complicated but it is a simple process aimed to require as little effort from the employer and employee as possible. 

The Novated Subscription Process:

The steps for novated subscriptions are streamlined to minimise business time involvement:

1. Register Interest: Business registration takes a brief 15 minutes, after which Karmo provides setup documents.
2. Offer EV Subscriptions: Once registered, businesses can commence offering novated subscriptions as an employee benefit.
3. Set Up Payroll Deductions: With executed subscription contracts and novation deeds, payroll/HR receive signed deduction authorities outlining pre and post-tax deductions.
4. Pay Tax Invoices: Monthly tax invoices are issued for covered pay periods, balancing deductions from employee wages. Payment is made to Karmo’s account, utilised to cover employee subscriptions.

Subscribing to the Car

The sacrificed amount is allocated toward subscribing to the car, encompassing weekly payments and the employer’s responsibility for the vehicle’s subscription, including running expenses like insurance, registration, maintenance, and servicing.

Register your business today

Embrace the future of employee benefits with novated EV subscriptions. Register today to seamlessly roll out this innovative program for your employees and enjoy the associated tax breaks and incentives.To learn more about the benefits offering novated subscription can provide your business click here.