As Australia approaches the third Federal Budget on March 29 set amid rising economic and social challenges caused by COVID-19, PwC Australia is recommending a suite of landmark tax reform proposals to help Australia reach net zero emissions by 2050.
“The transport sector is one of the largest sources of air pollution in Australia, and light vehicles account for about half of the carbon emissions the sector is responsible for. If Australia is serious about delivering on its net zero by 2050 commitments, electric vehicles will no doubt have a critical role to play,” said PwC tax partner Jayde Thompson.
In a submission to the Federal Treasury ahead of the March Budget, PwC Australia recommends adjustments to the tax system to facilitate a significant uptake in cleaner technologies and industries to progress towards a greener economy and a cleaner environment.
The fulfilment of the Federal Government’s net zero emissions target is underpinned mainly by the predicted adoption of 1.7 million EVs by 2030, but Australia lags behind its global peers when it comes to EV take-up rates.
“Financial and non-financial incentives will be critical when it comes to encouraging more people to embrace a future with EVs, and the tax system has a critical role to play,” says Thompson.
PwC Australia’s recommendations include:
• Extending the temporary full expensing measure beyond its current expiration, and limiting it to zero-emission business vehicles and any depreciating assets that use energy-efficient technologies;
• Increase or remove the luxury car tax limit on zero-emission vehicles;
• Increase or remove the car depreciation limit on zero-emission vehicles;
• Provide Fringe Benefits Tax (FBT) concessions for the provision of electric vehicles and necessary charging expenditure.
FBT reform could be the key to the behavioural change required to get more EVs on the road in Australia, PwC adds.
“The current FBT system acts in a contradictory manner by effectively punishing employers who adopt ‘cleaner’ forms of transportation for their employees with a high associated FBT cost.
“This is due to a number of reasons. Firstly, none of the current electric vehicles available for purchase in Australia qualify as an exempt vehicle for FBT purposes, unlike vans or utility vehicles provided primarily for work.
Secondly, the cost of EVs is often much higher than other passenger vehicles, which means for those employers who use the compliance saving ‘statutory formula’ method of working out the FBT, electric vehicles will likely incur a higher level of tax.
“In fact, we have witnessed several employers maintain or purchase new fleets of combustion engine vehicles over electric vehicles, to continue to access concessional FBT treatment,” says Thompson.
Providing concessional treatment such as, for example, a discount to the base value of electric vehicles under the ‘statutory formula’ method would encourage more EVs to form part of a business’s vehicle fleet.
“A specific FBT exemption could also be considered for the provision of charging, including charging infrastructure,” says Thompson.
“It is currently extremely difficult to determine the taxable value of charging for any electric car benefit, including the at-home electricity costs.”
Temporary full expensing will encourage more businesses to go green as they grow their operations, PwC explains.
It’s been a crucial policy measure implemented as a result of the COVID-19 pandemic, increasing the opportunity for businesses to invest in their operations by allowing them an immediate tax deduction for the business portion of the cost of the asset they purchase in the year it is first used or installed ready for use.
According to PwC Australia, while this measure is currently set to expire on June 30, 2023, there are opportunities for its application to be extended – and indeed made permanent – for any depreciating assets that use energy-efficient technologies.
“This is a sensible, behavioural-change reform proposal that would not only help address flailing business confidence as a result of the pandemic, but also encourage more Australian businesses to embrace a clean energy technology future,” says Thompson.
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