Edited version of private advice

Authorisation Number: 1052198489273

Date of advice: 4 January 2024

Ruling

Subject: GST - taxable supply

Question 1

Are you entitled to claim input tax credits on the purchase of the EV pursuant to section 11-20 of the GST Act?

Answer

Yes. You will be entitled to claim input tax credits on the purchase of the EV pursuant to section 11-20 of the GST Act.

Question 2

Will your eventual sale of the EV be a taxable supply pursuant with section 9-5 of the GST Act?

Answer

Yes. Your eventual sale of the EV will be a taxable supply provided you meet the requirements in section 9-5 of the GST Act.

Question 3

Are you entitled to claim input tax credits on the reimbursement you make to your directors for expenses they incur for insurance, memory cards, charging cables and car mats, servicing, repairs & maintenance, and replacement of consumables such as tyres in respect of the EV pursuantto Division 111 of the GST Act?

Answer

Yes. You are entitled to claim input tax credits on the reimbursement you make to your directors for expenses they incurred for insurance, memory cards, charging cables, car mats, servicing, repairs & maintenance, and replacement of consumables such as tyres in respect of the EV pursuantto Division 111 of the GST Act.

Question 4

Is the purchase price of the EV (net of rebate) deductible for income tax and on what basis of apportionment over which tax years

Answer

Yes. The purchase is deductible in full in the 2023 income year.

Question 5

In the event of future disposal, how are sales proceeds treated for income tax purposes?

Answer

For income tax, selling the EV will result in a balancing adjustment event, which may result in an assessable amount.

Question 6

Is the cost of insurances deductible for income tax?

Answer

Yes.

Question 7

Is a deduction for income tax available for electricity used to charge the EV and on what basis can this be calculated?

Answer

Yes, if you can demonstrate it incurred electricity costs in charging the EV. You may need to apportion electricity costs between EV and non-EV components on a fair and reasonable basis.

Question 8

Is a deduction for income tax available for servicing, repairs & maintenance, and replacement of consumables such as tyres.

Answer

Yes.

Question 9

Is a deduction for income tax available for costs of the SD Memory Card, car mats, and AC charging cables attached to the EV?

Answer

Yes, as part of the decline in value under the capital allowance rules in Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997).

Question 10

Will Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to treat you as having paid a dividend to the directors when you provide the EV to them for their use?

Answer

No. Division 7A of the ITAA 1936 won't apply to treat you as having paid a dividend to its directors, because it provides the EV to them in their capacity as employees.

Question 11

Will the EV provided by you qualify for the zero or low emission vehicle exemption available under subsection 8A(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes.

This ruling applies for the following periods:

1 July 2022 to 30 June 2023

1 July 2023 to 30 June 2024

1 July 2024 to 30 June 2025

1 July 2025 to 30 June 2026

1 July 2026 to 30 June 2027

The scheme commences on:

The date this ruling was issued.

Relevant facts and circumstances

You have an Australian Business Number (ABN) and are registered for GST.

You make financial supplies that are input taxed supplies for GST purposes.

You deal in and derive income from debt, equity, and unit trusts securities, including sub-underwriting new issues and derivative contracts on such securities.

You have no other employees except for two directors have not received remuneration in at least the past ten years.

Neither of the directors have an ABN or are registered for GST.

On XXXX, you ordered an EV totalling $XXXX.XX including GST of $XXXX.XX.

You supplied a copy of the tax invoice dates XX XXXX XXXX and copy of payment receipt showing the EV was paid for in full on XX XXXX XXXX.

The EV was used for the first time on or around XX XXXX XXXX.

Expenses incurred on the EV such as insurance, memory cards, AC charging cables, car mats are paid for by credit card in the name of the director and reimbursed from your bank account on or after the payment date.

The GST incurred for car related expenses for year ending XX XXXX XXXX, was $xx per month for insurance, plus other amounts totalling less than $XX per month including SD Card ($xx), Mats ($xx), 15 Amp cable ($xx). Future years are not expected to be significantly different.

Since purchase and in all relevant Fringe Benefit Tax (FBT) years, the EV has almost entirely been used by the directors and their immediate family for private use.

No material use of the EV was for making financial supplies.

100% of the EV is for private use by the directors based on kilometres travelled.

You continued to hold and use the EV for the same purposes until at least XX XXXX XXXX.

Your turnover is less than $XX million.

The EV was used and will be used exclusively in Australia.

You won't make a choice under section 40-190 of the Income Tax (Transitional Provisions) Act 1997 (ITTP 1997)not to apply Subdivision 40-BB of the ITTP 1997.

The directors are the only shareholders of yours.

You will incur electricity costs for charging the EV and can demonstrate the extent to which any electricity costs/charges relate to charging the EV.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-5

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-20

A New Tax System (Goods and Services Tax) Act 1999 Subsection 15-20

A New Tax System (Goods and Services Tax) Act 1999 subsection 71-5

A New Tax System (Goods and Services Tax) Act 1999 Division 111

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Fringe Benefits Tax Assessment Act 1986 Section 7

Fringe Benefits Tax Assessment Act 1986 Section 8A

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 58X

Fringe Benefits Tax Assessment Act 1986 Section 136

Fringe Benefits Tax Assessment Act 1986 Section 137

Fringe Benefits Tax Assessment Act 1986 Section 162

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 28-10

Income Tax Assessment Act 1997 Section 28-12

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 40-25

Income Tax Assessment Act 1997 Section 40-30

Income Tax Assessment Act 1997 Section 40-45

Income Tax Assessment Act 1997 Section 40-60

Income Tax Assessment Act 1997 Section 40-65

Income Tax Assessment Act 1997 Section 40-85

Income Tax Assessment Act 1997 Section 40-180

Income Tax Assessment Act 1997 Section 40-185

Income Tax Assessment Act 1997 Section 40-190

Income Tax Assessment Act 1997 Section 40-230

Income Tax Assessment Act 1997 Section 40-285

Income Tax Assessment Act 1997 Section 40-295

Income Tax Assessment Act 1997 Section 40-300

Income Tax Assessment Act 1997 Section 40-305

Income Tax Assessment Act 1997 Section 43-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 118-24

Income Tax Assessment Act 1997 Section 328-110

Income Tax (Transitional Provisions) Act 1997 Section 40-145

Income Tax (Transitional Provisions) Act 1997 Section 40-150

Income Tax (Transitional Provisions) Act 1997 Section 40-155

Income Tax (Transitional Provisions) Act 1997 Section 40-157

Income Tax (Transitional Provisions) Act 1997 Section 40-160

Income Tax (Transitional Provisions) Act 1997 Section 40-165

Income Tax (Transitional Provisions) Act 1997 Section 40-167

Income Tax (Transitional Provisions) Act 1997 Section 40-170

Income Tax (Transitional Provisions) Act 1997Section 40-190

Income Tax Assessment Act 1936 Division 7A

Income Tax Assessment Act 1936 Section 109C

Income Tax Assessment Act 1936 Section 109CA

Income Tax Assessment Act 1936 Section 109ZB

Reasons for decision

Questions 1 to 3

In this ruling for questions 1 to 3 the following reference applies,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

Question 1

Are you entitled to claim input tax credits on the purchase of the EV pursuant to section 11-20 of the GST Act?

Summary

Yes. You will be entitled to claim input tax credits on the purchase of an electric vehicle pursuant to section 11-20 of the GST Act.

Detailed reasoning

Section 11-20 of the GST Act provides that you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a)  you acquire anything solely or partly for a *creditable purpose; and

(b)  the supply of the thing to you is a *taxable supply; and

(c)   you provide, or are liable to provide, *consideration for the supply; and

(d)  you are *registered, or *required to be registered.

In this case you satisfy the requirement of (b), (c) and (d) set out above. Therefore, what remains to be determined is whether you have acquired the EV solely or partly for a creditable purpose. The meaning of creditable purpose is set out in section 11-15 of the GST Act which states:

(1)  You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)      However, you do not acquire the thing for a creditable purpose to the extent that:

(a)  the acquisition relates to making supplies that would be *input taxed; or

(b)  the acquisition is of a private or domestic nature.

In your case, you acquired the EV for the purpose of providing the vehicle to the directors and their immediate family. The supply of the vehicle to the directors is a fringe benefit to the directors which is an exempt fringe benefit (see reasons for decision in question 11).

Entitlement to input tax credits for supplies of fringe benefits is discussed in Goods and Services Tax Ruling GSTR 2001/3; Goods and Services Tax: GST and how it applies to supplies of fringe benefits (GSTR 2001/3). In particular paragraph 50 in GSTR 2001/3 states:

50. You acquire a thing for a creditable purpose if you acquire it in carrying on your enterprise. You import goods for a creditable purpose if you import the goods in carrying on your enterprise. If you acquire or import something to provide a fringe benefit in respect of employment in your enterprise, you have acquired it in carrying on your enterprise.

In discussing whether an acquisition or importation made to provide a fringe benefit is for a creditable purpose, paragraph 52 in GSTR 2001/3 states:

52. An acquisition or importation you make to provide a fringe benefit in respect of employment in your enterprise is made in carrying on the enterprise and is not of a private or domestic nature for the purposes of section 11-15 of the GST Act and section 15-10. It is your purpose at the time of making the acquisition or importation that is relevant to whether the acquisition or importation is for a creditable purpose. For example, an acquisition made to provide a car for the private use of your employee is made for a creditable purpose.

An acquisition or importation made to provide a fringe benefit will be for a creditable purpose where it does not relate to making input taxed supplies.

In ascertaining the GST implications of the provision of a fringe benefit, GSTR 2001/3 distinguishes between two concepts, 'work benefit' and 'remuneration benefit'. The term 'remuneration benefits' is discussed at paragraphs 55 to 59 in GSTR 2001/3 and states:

55. 'Remuneration benefits' are benefits provided to employees which, together with salary and wages, are provided by employers in return for employee services. Acquisitions that relate to providing these remuneration benefits will not relate to other supplies that an entity makes, such as input taxed supplies that an entity makes to clients or customers.

56. Examples of Remuneration Benefits would include:

•         Use of a car to be used for employee's private travel;

•         Entertainment provided to employees;

•         Employee holiday travel and accommodation.

Example 9

57. International Bank acquires a car by way of lease, undertaking to make lease payments to a lessor so as to provide employee Eva with a motor vehicle for her private use, entirely as a remuneration benefit. The bank does not require the car to be used for work activities. The supply of the car to International is a taxable supply. International is entitled to input tax credits for the lease payments on the car and for car running costs such as petrol and repairs that it incurs to the extent that it meets the other requirements of section 11-5.

Consistent with paragraphs 55 to 57 in GSTR 2001/3, you have purchased an EV that will be a remuneration benefit to the directors. The supply of the EV is not an input taxed supply. On this basis you satisfy paragraph 11-5(a) of the GST Act and the EV is acquired for a creditable purpose.

It follows that as you meet all of the requirements of section 11-5 of the GST Act, your purchase of the EV is a creditable acquisition, and you are entitled to an input tax credit for the purchase.

Question 2

Will your eventual sale of the EV be a taxable supply pursuant to section 9-5 of the GST Act?

Summary

Yes. Your eventual sale of the EV will be a taxable supply provided you meet the requirements in section 9-5 of the GST Act.

Detailed Reason

You make a taxable supply if:

             (a)     you make the supply for *consideration; and

             (b)     the supply is made in the course or furtherance of an *enterprise that you *carry on; and

             (c)      the supply *is connected with the indirect tax zone; and

             (d)     you are *registered or *required to be registered.

The eventual sale of your EV will be a taxable supply where your sale is for consideration, made in the course or furtherance of your enterprise and is connected with Australia. Further you must be registered or required to be registered for GST. Therefore, provided you meet the requirements under section 9-5 of the GST Act, the sale of the EV will be a taxable supply, and you will be liable to remit one eleventh of the sale price in your business activity statement.

Question 3

Are you entitled to claim input tax credits on the reimbursement you make to your directors for expenses they incur for insurance, memory cards, charging cables and car mats, servicing, repairs & maintenance, and replacement of consumables such as tyres in respect of the EV pursuantto Division 111 of the GST Act?

Summary

You are entitled to claim input tax credits on the reimbursement you make to your directors for expenses they incurred for insurance, memory cards, charging cables, car mats, servicing, repairs & maintenance, and replacement of consumables such as tyres in respect of the EV pursuantto Division 111 of the GST Act

Detailed reasoning

As set out in our reasoning to question 1, you are entitled to an input tax credit for any creditable acquisition that you make.

An essential requirement for section 11-5 of the GST Act is that you make an acquisition and that there is a supply of the thing that is a taxable supply to you. However, Division 111 provides that subject to certain conditions an employer makes an acquisition that can be a creditable acquisition where:

•         an employee is reimbursed for an expense that constitutes an expense payment benefit, or

•         a payment is made on behalf of an employee for an expense that constitutes an expense payment benefit.

Subsection 111-5(1) of the GST Act provides that a reimbursement is treated as consideration for an acquisition that you make from the employee where amongst other things the following applies:

•         you reimburse an employee for an expense that he or she incurs that is related directly to his or her activities as your employee (paragraph 111-5(1)(a)), or

•         you reimburse an employee (whether or not you are the employee's employer) for an expense that the employee or the employee's associate incurs, and the reimbursement constitutes an expense payment benefit (paragraph 111-5(1)(ab) of the GST Act).

Subsection 111-5(2) of the GST Act provides that the fact that the supply to you is not a taxable supply does not stop the acquisition being a creditable acquisition.

However, under subsection 111-5(3) of the GST Act the acquisition is not a creditable acquisition:

(a)  to the extent (if any) that:

  i.    the employee, associate, agent, officer or partner is entitled to an input tax credit for acquiring the thing acquired in incurring the expense; or

ii.    the acquisition would not, because of Division 69 of the GST Act, be a creditable acquisition if you made it; or

(b)  unless the supply of the thing acquired, by the employee, associate, agent, officer or partner in incurring the expense, was a taxable supply; or

(c)   if you would, because of Division 71 of the GST Act, not have been entitled to an input tax credit if you had made the acquisition that the employee, associate, agent, officer or partner made.

In your case, the reimbursement of an employee's expenses is an expense payment benefit that is a benefit of a kind referred to in section 20 of the FBTAA 1986. As such, paragraph 111-5(1)(ab) of the GST Act applies to treat the reimbursement you make to your employees as consideration for an acquisition that you make from your employees. Further subsection 111-5(3) of the GST Act does not apply.

As a creditable acquisition arises under Division 111 of the GST Act in your circumstances, you are entitled to claim an input tax credit of one eleventh of the reimbursement.

Question 4 to 11

In this ruling for questions 4 to 11 the following reference applies,

•         ITTP means the Income Tax (Transitional Provisions) Act 1997

•         FBTAA means the Fringe Benefits Tax Assessment Act 1986

•         Hyphenated provisions (eg, section 40-25, Part 3-1) are in Income Tax Assessment Act 1997

•         Unhyphenated provisions (e.g., section 109ZB) are in the Income Tax Assessment Act 1936

•         Divisions 28, 40, and 43 are all in the Income Tax Assessment Act 1997

•         Subdivision 40-BB is in the Income Tax (Transitional Provisions) Act 1997

•         Division 7A is in the Income Tax Assessment Act 1936.

Question 4

Is the purchase price of the EV (net of rebate) deductible for income tax and on what basis of apportionment over which tax years?

Summary

The EV will be deductible under the section 40-25, with the temporary full expensing rules in Subdivision 40-BB applying so that the decline in value in the 2023 income year is treated as being the full cost of the asset.

Detailed reasoning

We'll consider the following issues:

•         Can you claim a general deduction under section 8-1 of ITAA 1997?

•         Is the EV a deprecating asset for which you can claim a deduction under Division 40 of for the decline in value?

•         Are you eligible to claim the full decline in value as a deduction because of the temporary full expensing rules in Subdivision 40-BB?

The purchase price for the EV isn't deductible under section 8-1 of ITAA 1997 because it's capital.

The general deduction provision allows deductions for losses or outgoings that meet requirements. Subsection 8-1(1) of the ITAA 1997 provides you can deduct from your assessable income any loss or outgoing to the extent that it's incurred in gaining or producing assessable income, or in carrying on business for the same purpose. But subsection 8-1(2) says the loss or outgoing can't be capital or of a capital nature, private or domestic, incurred to gain or produce exempt or non-assessable non-exempt (NANE) income, or denied under a specific provision.

The ATO provides guidance about when a loss or outgoing is 'incurred'. Broadly, losses or outgoings are 'incurred' when the taxpayer owes a present money debt it can't escape, or when it makes a payment in cases where there's no liability (See paragraphs 5 and 6 in Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions (TR 97/7).

The ATO view is that the words 'to the extent' means that expenses may need to be apportioned. Expenses may only be partly deductible if they are incurred partly for gaining or producing assessable income, and partly for some other purpose. Therefore, expenses should be apportioned (between income producing and other purposes) on a fair and reasonable basis. What is fair and reasonable depends on the facts and circumstances of the expense (see Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997 (TR 2020/1) at paragraphs 37-38.

We'll briefly paraphrase some statements from ATO guidance about identifying whether expenditure is 'capital'. Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues (TR 2011/6) at paragraphs 64-68 and Taxation Ruling TR 2017/1 Income tax: deductions for mining and petroleum exploration expenditure (TR 2017/1) at paragraphs 15 to 22 say that relevant factors include the character of the advantage sought, the way it's to be used or enjoyed, and the means adopted to obtain it. Capital expenditure will usually produce an asset or advantage with lasting character or some enduring benefit for the organisation or business structure. Capital expenditure can be contrasted with revenue or working expenses which need to be regularly incurred in the course of business.

The purchase price for the EV is capital expenditure. You bought the EV for your directors to use as a reward to the directors for carrying out their duties. From your perspective, the EV is a business asset which would be expected to last for some years and be a lasting benefit.

It follows that the purchase price isn't deductible under the general deduction provision because it's capital.

The EV qualifies for deductions under the uniform capital allowance rules in Division 40: it's a depreciating asset which will be used for a taxable purpose.

Broadly, the capital allowances rules in Division 40 allows deductions for the decline in value of depreciating assets.

The operative provision is in section 40-25. Subsection 40-25(1) allows you to deduct an amount for the decline in value of a depreciating asset you held. However, subsection 40-25(2) says you must reduce the deduction by the decline in value attributable to using (or having the asset installed ready for use) for a purpose other than a taxable purpose. Subsection 40-25(7) lists taxable purposes - one of them is producing assessable income.

Other provisions in Division 40 explain concepts relevant to determining the deduction in section 40-25. Section 40-40 is about when you hold a depreciating asset. Broadly, you hold a depreciating asset if you own it (see item 10 in the table); there are many exceptions but they aren't relevant here. Section 40-60 says a depreciating asset starts to decline in value from its start time - meaning when you first use it or have it installed ready for use. You work out the decline in value for each income year under rules in Division 40. (Broadly, you have a choice between two formulas known as the 'depreciating value' and 'prime cost' methods - see section 40-65.)

Subsection 40-30(1) says a depreciating asset is an asset with a limited effective life reasonably expected to decline in value over the time it's used, which isn't land, trading stock, or an intangible asset.

The EV is a depreciating asset. All motor vehicles are tangible assets, not land, and decline in value if used. You won't be holding the EV as trading stock.

You hold the EV because you became the owner when it was delivered in December 2022.

The EV will also be used for a taxable purpose. You acquired the EV and made it available for your directors and their immediate family to use for private purposes. While the directors will use the EV for private purposes, your purpose in giving it to them was to reward the directors for carrying out their duties. From your perspective, we think the directors' private use component is best characterised as a benefit they receive in respect of their duties as employees. The cost of providing your directors with a benefit is a cost of running the business for the purpose of producing assessable income, and therefore a taxable purpose.

But different facts might lead to a different conclusion about the taxable purpose. It's possible that a motor vehicle wouldn't be wholly used or held ready for use for a taxable purpose if the private use of the vehicle couldn't be characterised as a reasonable reward for the directors in carrying out their duties. We might form a different view if the value of the vehicle or the amount of private use was, in the circumstances, disproportionate or grossly excessive compared to the extent of the directors' duties or your income earning activities.

In those cases, subsection 40-25(2) would either disallow or reduce the deduction to the extent that the EV was used (or held ready for use) for another purpose.

The EV qualifies for temporary full expensing under Subdivision 40-BB of the ITTP.

Broadly, the temporary full expensing rules allow some taxpayers to claim an upfront deduction for the cost of a depreciating asset in qualifying circumstances. If eligible, the decline in value is the full cost of the depreciating asset under rules in sections 40-160 and 40-170 of the ITTP. Subsections 40-160 (1) and (2), and subsections 40-170(1) and (1A) of the ITTP list those conditions - we list and apply them in Table 1. Where the decline in value is worked out under Subdivision 40-BB, the usual rules for calculating the decline in value in Division 40 don't apply: see section 40-145 of the ITTP.

Those subsections incorporate requirements in other sections including 40-150 and 40-155 of the ITTP. We consolidate and apply the relevant conditions in Table 1.

You qualify for the conditions applying to the asset for reasons we explain in Table 1.

Table 1: conditions for temporary full expensing under sections 40-160 and 40-170 of the ITTP.

Table 1: Conditions for temporary full expensing under sections 40-160 and 40-170 of the ITTP.

Table 2: is the asset covered by section 40-150 of the ITTP?

Table 2: Is the asset covered by section 40-150 of the ITTP?

It follows that you are eligible for temporary full expensing under Subdivision 40-BB.

Subsection 40-160(3) of the ITTP works out the decline in value for assets with a start time in the current year. The 'start time' means the time the asset was first used, or installed ready for use, for any purpose: see subsection 40-60(2). Subsection 40-160(3) says the decline in value for the current year is the asset's cost, disregarding ay amount included in it's cost after 30 June 2023.

You work out a depreciating asset's cost under rules in Division 40. Cost has 2 elements worked out under rules in sections 40-180, 40-185, and 40-190. Many of those rules aren't relevant, but:

•         amounts you pay (to hold a depreciating asset) are included in the first element: see Item 1 in subsection 40-185(1)

•         some amounts that contributed to bringing the asset to its present condition and location since you started to hold the asset are included in second element: see subsection 40-190(2).

The cost of a car is limited to the 'car limit'. Section 40-230 says the first element of the cost of a car designed mainly for carrying passengers is reduced to the car limit for the financial year in which you started to hold the asset, if its cost exceeds that limit. Subsection 40-230(3) says the car limit started at $55,134 and is indexed annually. According to the ATO website, the car limit was $64,741 for the 2022-23 financial year.

The purchase price for the EV would be included in first element of its cost under subsection 40-185(1). The car limit isn't relevant here because the purchase price was less than $XXXX.

Conclusion: section 40-25 (of the Income Tax Assessment Act 1997) and section 40-160 of the ITTP interact to give you a full upfront deduction for the EV's purchase price.

You can deduct the purchase price for the EV in the 2023 income year. Section 40-25 gives you a deduction for the decline in value of the EV because it's a depreciating asset used for a taxable purpose. You meet all the conditions for the EV for temporary full expensing under subdivision 40-BB. Section 40-160 of the ITTP applies to treat the EV's decline in value for the 2023 income year as being the cost of the asset, which is the purchase price. It follows that the EV's purchase price is deductible as an upfront deduction.

Question 5

In the event of future disposal, how are sales proceeds treated for income tax purposes?

Summary

For income tax, selling the EV will result in a balancing adjustment event, which may result in an assessable amount. When you sell the EV, you will stop using it or holding it, which is a balancing adjustment event. You will need to include an amount in your assessable income if the amount you receives on sale exceed the EV's adjustable value on sale. This seems likely because the adjustable value will have been reduced by the decline in value, worked out under the temporary full expensing rules. If the adjustable value is nil, any sale proceeds would be assessable to you.

Detailed reasoning

For income tax purposes, assessable income includes ordinary income and statutory income. Section 6-5 of the ITAA 1997 includes income according to ordinary concepts (ordinary income) in assessable income. Section 6-10 includes other amounts assessed under specific provisions (known as statutory income) in assessable income. Section 10-5 has a list of statutory income provisions. That list relevantly includes balancing adjustments which represent the excess of termination value over adjustable value (under various provisions in Division 40) and capital gains provisions (under section 102-5).

Proceeds from selling the EV won't be assessable under section 6-5.

There's ATO guidance about determining whether receipts are ordinary income. Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence, or cease business (TR 2006/3) at paragraph 85 lists some considerations for distinguishing whether a receipt is income. We'll loosely paraphrase some of them.

•         The nature of a payment is determined by the character of the payment in the recipient's hands (the character of the expenditure for the payer isn't determinative).

•         When characterising the payment, it's necessary to consider all facts and a broad view of your total situation.

•         Payments may be income if they are received periodically, regularly, or recurrently, or consideration for services.

•         Receipts from isolated transactions entered with an intention to profit may be income.

•         Receipts from surrendering capital assets aren't income.

The EV won't be assessable under section 6-5. You don't buy and sell EV's or other vehicles as part of its business (for example, they aren't trading stock). In your hands, the EV is a capital asset. Any proceeds from selling it would be a capital receipt, not assessable as ordinary income.

Selling the EV would result in a balancing adjustment event.

We concluded in Question 5 that you can claim deductions for the EV's decline in value under the capital allowances rules in Division 40.

The capital allowances rules also set out consequences for 'balancing adjustment events' which broadly are about when assets stop being treated as depreciating assets under Division 40.

Section 40-295 says balancing adjustment events occur when you stop holding a depreciating asset, stop using it (or have it installed ready for use) for any purpose, or you haven't used it and decide not to use it.

•         Some balancing adjustment events may result in income. Subsection 40-285(1) says you include an amount in your assessable income for a depreciating asset where: you worked out the decline in value under Subdivision 40-B, and

•         the asset's termination value is more than its adjustable value.

Termination value is worked out under sections 40-300 and 40-305, but relevantly include amounts you receive for the asset: see Item 1 in the table in subsection 40-305(1).

Adjustable value (at a particular time) broadly means the asset's cost, less its decline in value up to that time, plus any new amounts included in the second element. See section 40-85.

You may need to include an amount in its assessable income from a balancing adjustment event if it sells the EV after using it as a depreciating asset.

•         If you sell the EV, it will stop holding it and using it, triggering a balancing adjustment event.

•         We concluded in Question 5 that the EV's decline in value for the 2023 income year will be the full cost of the asset.

•         It follows that the adjustable value is likely to be nil (assuming no new amounts are included as second element costs).

•         If you receive any sale proceeds, the termination value will most likely exceed the adjustable value, triggering an assessable amount under subsection 40-285(1).

Selling the EV will be a balancing adjustment event, so section 118-24 applies to disregard any capital gain or capital loss from the sale.

Very broadly, the CGT rules in Parts 3-1 and 3-3 include gains and losses from CGT events and include them in assessable income.

One CGT event is CGT event A1, which happens if you dispose of a CGT asset section 104-10. You dispose of a CGT asset if there's a change of ownership from you to another entity.

CGT assets include any kind of property: section 108-5.

For CGT event A1, you work out if you have a capital gain or capital loss by comparing the capital proceeds from the event to the cost base (or reduced cost base) for the relevant CGT asset: subsection 104-10(4).

However, section 118-24 disregards a capital gain or capital loss from a balancing adjustment event. Subsection 118-24(1) says a capital gain or capital loss you make from a CGT event (that's also a balancing adjustment event) that happens to a depreciating asset is disregarded if you held the asset, and the asset's decline in value was worked out under Division 40.

Here, CGT event A1 will happen if you sell the EV. The EV is property and therefore a CGT asset. If you sell the EV, you will dispose of a CGT asset to another entity.

But section 118-24 will disregard any capital gain or capital loss resulting from the sale. We concluded that the EV is a depreciating asset at in Question 4. The amount of the decline in value is worked out under section 40-160 of the ITTP rather than under the general rules in Division 40. However, we think the temporary full expensing rules are best understood as modifying the general capital allowance rules in Division 40, rather than an independent depreciation regime. (For example, under the temporary full expensing rules, the primary deduction is allowed by section 40-25, and other concepts such as 'start time', 'termination value,' and 'adjustable value' are still set by the standard rules under Division 40). Therefore, we think that the EV will have had its decline in value 'worked out under Division 40' even where the temporary full expensing rules in Subdivision 40-BB apply. Since the conditions in subsection 118-24(1) are met, any resulting capital gain or loss will be disregarded.

Conclusion: you will have an assessable amount from selling the EV if the termination value exceeds the adjustable value on sale.

You are likely to have an assessable amount from selling the EV. Proceeds from the EV wouldn't be assessable as ordinary income and won't result in a capital gain or loss. But the sale will trigger a balancing adjustment event. Subsection 40-285(1) will include an amount in your assessable income if the termination value exceeds the adjustable value. This seems a likely outcome if the decline in value has been worked out under the temporary full expensing rules. If the adjustable value is nil, any sale proceeds would be assessable to you.

Question 6

Is the cost of insurances deductible for income tax?

Summary

Yes.

Detailed Reasoning

There's no specific provision in tax legislation governing how you may claim deductions for car expenses (such as insurance, repairs, servicing, and electricity costs). Car expenses may be deductible under the general deduction provision in section 8-1. Division 28 has special rules for working out and substantiating deductions for car expenses, but it only applies to individuals (and partnerships including at least one individual) - see sections 28-10 and 28-12.

We described and explained the general deduction provision (section 8-1) in Question 4.

The cost of insurance for the EV will be deductible (in full) as a general deduction.

•         From your perspective, you incur insurance costs to allow directors to travel for their duties in carrying on your business.

•         Vehicle insurance is an incidental running cost arising from owning and using a vehicle.

•         This establishes a link between the costs and carrying on a business for income producing purposes, which passes the positive limbs in subsection 8-1(1).

•         Insurance costs aren't capital in nature. They're incurred periodically and the benefit (of insurance coverage) lasts for a limited and defined period. The outgoings don't secure lasting asset, advantage, or benefit to you.

•         From your perspective, the costs aren't private in nature: they are incurred to reward the directors for carrying out their duties in running your business. While the directors use the EV for private purposes, from your perspective, the costs were incurred to provide fringe benefits to directors for the broader purpose of carrying on a business.

As discussed in Question 5, the answer could be different on different facts. The expense wouldn't be fully deductible if the private use couldn't be characterised as reasonable remuneration for the directors in carrying out their duties. In that case, deductions for insurance costs would be disallowed or reduced to the extent they were attributable to a non-income producing or non-business purpose. In some circumstances, it may be appropriate to apportion the expense into deductible and non-deductible components on a fair and reasonable basis.

Question 7

Is a deduction for income tax available for electricity used to charge the EV and on what basis can this be calculated?

Summary

You can claim the costs of charging the EV as general deductions if incurred those costs and can substantiate that the claim relates to charging the EV for income producing purposes. It may need to apportion charging costs if part of the costs relates to other purposes.

Detailed reasoning

A deduction is potentially available for outgoings incurred for electricity used to charge the EV for similar reasons to those we gave for insurance costs in Question 6. Electricity costs incurred in running a business (including charging EVs used for business purposes) would pass the positive limbs. They also wouldn't be capital - EV charges are periodical and don't produce a lasting benefit. They aren't private in nature. From your perspective, your purpose in charging the EV is to allow directors to travel for their duties in carrying on your business.

But again, the answer could be different on different facts. The expense wouldn't necessarily be fully deductible if the private use couldn't be characterised as reasonable remuneration for the directors in carrying out their duties. In that case, electricity would be disallowed or reduced to the extent it was attributable to a non-income producing or non-business purpose. In some circumstances, it may be appropriate to apportion the expense into deductible and non-deductible components on a fair and reasonable basis.

Our response assumes that you can demonstrate that you incurred the electricity costs for charging the EV. You would need to show that it paid the relevant electricity costs using its own funds, or that it became liable to pay those costs. You would need to substantiate that it incurred the costs and that all deductions claimed related to charging the EV.

There's no specific provision addressing how you can calculate deductions for electricity used to charge an EV.

The ATO has a compliance approach for EV electricity charging costs in Draft Practical Compliance Guideline PCG 2023/D1 Electric vehicle home charging rate - calculating electricity costs when charging a vehicle at an employee's or individual's home. It allows a rate of 4.2 cents per kilometre for the FBT year starting 1 April 2022. Very broadly, it applies to employers who:

•         provide a car to an employee (or associate) for private use, resulting in a fringe benefit (car, residual, or car expense payment)

•         that employee who charges the car at their home, but the electricity cost directly attributable to charging the electric vehicle cannot be practically segregated from the cost of running other electrical appliances in the home, and

•         those charging costs are relevant to calculating the taxable value of fringe benefits as part of their FBT obligations (paragraphs 6 and 11).

The PCG also applies to individuals who incur electricity costs of charging an EV at home, need to calculate electricity costs for calculating their own car or motor vehicle expenses (paragraphs 7 and 11).

PCG 2023/D1 isn't relevant to you. You are providing the EV to its directors, which may result in a fringe benefit. But providing the EV to directors won't necessarily result in you having to calculate fringe benefits because the provision of the EV is exempt under section 8A of the FBTAA. You are not an individual, and so can't rely on PCG 2023/D1 to calculate income tax deductions.

In some cases, it might be difficult to determine the extent to which electricity costs relate to charging an EV. This would be straightforward where you incurred a charging cost from a commercial charging station. However, when you used other charging facilities, electricity bills would most likely include general electricity charges, which would only partly relate to the EV. In that case, your will need to apportion electricity charges between the deductible and non-deductible components on a fair and reasonable basis. What the Commissioner would accept as being a fair and reasonable apportionment would depend on the facts and circumstances of each case. You would need to explain their methodology and produce records to substantiate that the apportionment was reasonable.

Question 8

Is a deduction for income tax available for servicing, repairs & maintenance, and replacement of consumables such as tyres?

Summary

Yes.

Detailed Reasoning

A deduction is available for outgoings incurred for servicing, repairs and maintenance, and replacement of consumables. Our reasons are similar to those we gave for insurance costs in Question 6. These costs (servicing, repair/maintenance costs, and replacing tyres) are periodical costs incurred to keep the vehicle functioning. They don't produce a lasting benefit or advantage - they just allow it to keep using its asset to help operate the business. The expenses aren't private in nature. From your perspective, your purpose in incurring these costs is to allow directors to travel for their duties in carrying on your business.

But again, the answer could be different on different facts. The expense wouldn't be fully deductible if the private use couldn't be characterised as reasonable remuneration for the directors in carrying out their duties. In that case, costs would be disallowed or reduced to the extent they were attributable to a non-income producing or non-business purpose. In some circumstances, it may be appropriate to apportion the expense into deductible and non-deductible components on a fair and reasonable basis.

Question 9

Is a deduction for income tax available for costs of the SD Memory Card, car mats, and AC charging cables attached to the EV?

Answer

Yes, as part of the decline in value under the capital allowance rules in Division 40.

Summary

Costs for the memory card, car mats, and charging cables aren't deductible under section 8-1. We characterise them as capital in nature because they're accessories attached to the EV, which is a capital asset.

However, the costs can be claimed under the capital allowances rules. They can be included in the EV's cost (as second element) when calculating deductions for the EV's decline in value. If the costs were incurred before 30 June 2023, they can be included in any claim under the temporary full expensing provisions.

Detailed reasoning

We described the general deduction provision (section 8-1) in Question 4.

The SD Memory Card, car mats, and AC charging cables attached to the EV aren't deductible as a general deduction. These items are accessories which are attached to the EV and would be expected to last for a significant period - perhaps as long as the vehicle. You would have incurred any costs associated with buying or installing these items for the same reason it bought the EV - to secure a vehicle to make available to directors to carry out their duties in operating the business for a lasting period. The costs have a capital character for the same reason the purchase price for the EV had a capital character.

We explained the capital allowances provisions, including the temporary full expensing rules, in Question 5.

The costs for the SD Memory Card, car mats, and AC charging cables attached to the EV can be included in the second element of cost for the EV. These items are purchased as accessories to improve the amenity of the vehicle for the occupants. Therefore, they have contributed to bringing the asset to its present condition and location, which is the requirement for second element of cost: subsection 40-190(2).

If the items were purchased and installed for use in the EV before 30 June 2023, they could be included in the EV's decline in value for the 2023 income year, as calculated under the temporary full expensing rules.

Question 10

Will Division 7A apply to treat you as having paid a dividend to the directors when it provides the EV to them for their use?

Summary

Division 7A won't apply to treat you as having paid a dividend to its directors, because it provides the EV to them in their capacity as employees.

Detailed reasoning

Broadly, Division 7A treats some loans, payments, and debt forgiveness events being taxed as dividends from a private company to a shareholder or associate.

We'll briefly explain the rules applying to payments. Subsection 109C(1) says a private company is taken to pay a dividend to an entity if the private company pays an amount to it, and either:

•         the payment is made when the entity is a shareholder (or an associate of a shareholder), or

•         a reasonable person would conclude (having regard to all the circumstances) that the payment is made because the entity has been a shareholder (or associate) at some time.

However, section 109CA says that 'payment' for Division 7A purposes includes the provision of an asset for use by an entity.

Section 109C could apply to deem a dividend here. You are a private company. It will be taken to have made a payment to its directors when it makes the EV available for their use. Section 109C would be met if the directors were your shareholders (or were associates of your shareholders) when it made the EV available to them.

However, subsection 109ZB(3) says that Division 7A doesn't apply to a payment made to a shareholder, or an associate of a shareholder, in their capacity as an employee (or associate of an employee). Employee in this context takes its meaning in the FBTAA.

The definition of 'employee' is linked to salary and wages. Section 136 of the FBTAA says 'employee' includes a current employee, and 'current employee' means a person who receives, or is entitled to receive, salary or wages. However, the effect of section 137 is that benefits are taken to be salary or wages, if they would have been salary or wages if provided by way of a cash payment. Section 136 says 'benefit' includes any right, privilege, service, or facility. (Section 136 doesn't specify that the relevant 'benefits' must be fringe benefits that are taxable under the FBTAA.) 'Salary or wages' includes amounts which are subject to withholding under section 12-40 of Schedule 1 to the Taxation Administration Act 1953. That provision requires a company to withhold an amount from a payment of remuneration it makes to an individual as a director of the company, or as a person who performs the duties of a director of the company.

In the circumstances of this case, we think the EV is made available to the directors in their capacity as employees. You made the EV available to them to carry out their duties as directors. We've also characterised any private use as a reward for those duties. We think that establishes a link with their 'employment' for the purposes of subsection 109ZB(3). The directors would be treated as employees for FBT purposes: they have received benefits through being allowed the use of the EV, so they would have received salary or wages if that benefit was taken as cash. If the directors took their benefit in the form of cash, it would have been subject to withholding as a payment to a director.

It follows that subsection 109ZB(3) prevents Division 7A applying to deem a dividend from the shareholder to the associate.

Question 11

Will the EV provided by you qualify for the zero or low emission vehicle exemption available under subsection 8A(1) of the FBTAA 1986?

Summary

The EV provided by you will qualify for the zero or low emission vehicle exemption available under subsection 8A(1).

Detailed Reasoning

Subsection 8A(1) of the FBTAA states that a car benefit will be exempt if:

(a)  the benefit is provided in the year of tax in respect of the employment of a current employee; and

(b)  the car is a zero or low emissions vehicle when the benefit is provided; and

(c)   no amount of luxury car tax (within the meaning of the A New Tax System (Luxury Car Tax) Act 1999) has become payable on a supply (within the meaning of that Act) or importation (within the meaning of that Act) of the car before the benefit is provided.

To determine whether an exemption from FBT would apply under this provision, it is firstly necessary to consider whether the EV provided by you to the directors constitutes a 'car benefit' as defined in subsection 136(1) of the FBTAA.

Car benefit

A 'car benefit' is defined in subsection 136(1) to mean a benefit referred to in subsection 7(1) of the FBTAA.

Benefit

The definition of 'benefit' in subsection 136(1) of the FBTAA provides that a benefit will include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)  an arrangement for or in relation to:

(i)   the performance of work (including work of a professional nature), whether with or without the provision of property; ...

Section 7 of the FBTAA

Subsection 7(1) of the FBTAA explains when a car benefit arises. It states:

7(1) [Car applied to, available for employee's private use]

Where:

(a)  at any time on a day, in respect of the employment of an employee, a car held by a person (in this subsection referred to as the "provider"):

                                            (i)        is applied to a private use by the employee or an associate of the employee; or

                                           (ii)        is taken to be available for the private use of the employee or an associate of the

employee; and

(b)  either of the following conditions is satisfied:

                                            (i)        the provider is the employer, or an associate of the employer, of the employee;

                                           (ii)        the car is so applied or available, as the case may be, under an arrangement between:

(A)  the provider or another person; and

(B)  the employer, or an associate of the employer, of the employee;

that application or availability of the car shall be taken to constitute a benefit provided on that day by the provider to the employee or associate in respect of the employment of the employee.

7(2)

Where, at a particular time, the following conditions are satisfied in relation to an employee of an employer:

(a) a car is held by a person, being:

(i) the employer;

(ii) an associate of the employer; or

(iii) a person (other than the employer or an associate of the employer) with whom, or in respect of whom, the employer or an associate of the employer has an arrangement relating to the use or availability of the car;

(b) the car is garaged or kept at or near a place of residence of the employee or of an associate of the employee;

the car shall be taken, for the purposes of this Act, to be available at that time for the private use of the employee or associate, as the case may be.

Will the motor vehicle be 'held' by the provider (the Employer)?

Under section 162 of the FBTAA, a car is held by a person if that person holds or leases it, or it is otherwise made available to that person. According to the facts provided, you have purchased an EV which will be provided to the directors and their associates for private use.

The Commissioner therefore considers the EV to be 'held' by you.

Is the Employer's motor vehicle a 'car'?

Subsection 136(1) of the FBTAA states that for the purposes of the FBTAA, the definition for a 'car' is the definition contained in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 995-1(1) of the ITAA 1997 defines a 'car' to mean:

...A motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.

According to the facts of this case, the EV provided by you (with 5 seats) is designed to carry fewer than 9 passengers.

In terms of whether a five-seater EV has a designed load capacity of less than one tonne, paragraph 11 of Miscellaneous Taxation Ruling MT 2024 Fringe benefits tax: dual cab vehicles eligibility for exemption where private use is limited to certain work-related travel (MT 2024) provides a description of how to calculate a vehicle's 'designed carry load':

11....the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up loaded weight), reduced by the basic kerb weight of the vehicle. For this purpose, basic kerb weight is synonymous with unladen weight, as specified in the Australian Design Rules, being the weight of the vehicle with a full tank of fuel, oil and coolant together with spare wheel, tools (including jack) and installed options. It does not include the weight of goods or occupants.

12. In the case of cab/chassis vehicles, the designed load capacity is to be ascertained after the body has been fitted to the vehicle, i.e. to satisfy the one tonne test, the margin between the gross vehicle weight and the basic kerb weight must not be less than one tonne plus the weight of the body which is ultimately attached to the vehicle.

The Vehicle Standard (Australian Design Rule - Definitions and Vehicle Categories) 2005 - made under section 12 of the Road Vehicle Standards Act 2018 - contains the following definitions:

GROSS VEHICLE MASS (GVM) - the maximum laden mass of a motor vehicle as specified by the 'Manufacturer'.

MANUFACTURER - the person who:

-     holds an approval under subsection 10A(1), (2) or (3) of the Motor Vehicle Standards Act 1989, to place an 'Identification Plate' on the vehicle; or

-     holds a road vehicle type approval or a road vehicle component type approval, granted under the Road Vehicle Standards Act 2018, which covers the vehicle or component (as applicable).

UNLADEN MASS [or 'Kerb Mass'] - the mass of the vehicle in running order unoccupied and unladen with all fluid reservoirs filled to nominal capacity including fuel, and with all standard equipment.

'Standard equipment' refers to the common equipment that a specific model of car is supplied with as specified and provided by the manufacturer.

According to the facts of the scheme, the EV purchased by the you is less than one tonne.

Therefore, this vehicle would be considered to meet the definition of a 'car' in subsection 995-1(1) of the ITAA 1997.

Is the car provided in respect of the Employee's employment?

It is firstly necessary to consider whether the directors to whom the car is provided is an employee of yours.

The term 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. A 'current employee' is defined in subsection 136(1) of the FBTAA to mean 'a person who receives, or is entitled to receive, salary or wages'.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to be a payment from which an amount must be withheld under one of a number of specified provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA) which deal with payments to employees, company directors and office holders.

The Commissioner considers that the directors to whom the car is provided is an employee of the employer.

As per subsection 136(1) of the FBTAA, the term 'in respect of' - in relation to the employment of an employee - includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.

Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee:

•         whether or not the benefit also relates to some other matter or thing

•         whether the employment is past, present or future

•         whether or not the benefit is surplus to the recipient's requirements

•         whether or not the benefit is also provided to another person

•         whether or not the benefit is offset by any inconvenience or disadvantage

•         whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment

•         whether or not the provision of the benefit is in the nature of income, and

•         whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 (Knowles), the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'. A similar view was also held in Essenbourne Pty Ltd v FC of T 2002 ATC 5201 and Starrim Pty Ltd v FCT (2000) 102 FCR 194; [2000] FCA 952; 2000 ATC 4460; (2000) 44 ATR 487.

To establish whether a sufficient or material connection will exist between the provision by the employer of a car and the employment of the employee, it is necessary to consider the circumstances in which the car will be provided.

According to the facts of the scheme, you have purchased an EV and will make the EV available for the directors' private use. As such, for the purposes of the scheme, the provision by you of an EV to the directors would be considered 'in respect of' the employee's employment.'

Is the car applied or taken to be available for the private use of the Employee?

The ATO's Fringe Benefits Tax - A Guide for Employers publication provides that:

Private use is everything else other than in the exclusive course of working, running a business or otherwise earning income. This means that private use of a car includes any use that is dual purpose and has both private and business aspects to it.

The term applied means actual private use of the car by your employee or where your employee (or a third party) has used the car in accordance with the directions given by you or another person that the car be used for their private use. Private use means any use. It does not just mean driving the car.

'Private use' is defined in subsection 136(1) of the FBTAA to mean any use that is not exclusively in the course of producing assessable income of an employee.

In AAT Case 9824 (1994) 29 ATR 1246, a car was garaged at premises that were both the employee's residence and the employer's business premise. It was held that the car was garaged at the employee's residence and thus was available for private use.

As per the principles embodied in Taxation Determination TD 94/16 Fringe benefits tax: where an employee is provided with a car by the employer and the car is kept in safe storage (e.g. in a commercial garage) while the employee is travelling, under what circumstances is that car taken to be available for private use under section 7 of the Fringe Benefits Tax Assessment Act 1986? and the ATO's Fringe Benefits Tax - A Guide for Employers publication, a car that is garaged at an employee's home is treated as being available for private use of the employee regardless of whether they have permission to use it for private purposes. Where the place of employment and place of residence are the same, the car is taken to be available for the private use of the employee.

According to the facts of the scheme, the EV that will be provided to the directors will be applied or taken to be available for the private use of the directors.

Therefore, as per the facts of the scheme, a motor vehicle (which meets the definition of a 'car') will be held by the employer and provided to the employees in respect of their employment. The car will be applied or taken to be available for the private use of the employees. As such, each of the conditions in subsections 7(1) and 7(2) of the FBTAA will be satisfied.

A car benefit would thus arise in respect of the provision of an EV to the directors pursuant to section 7 of the FBTAA.

Is the provision of the motor vehicle an exempt car benefit for the purposes of Section 8A of the FBTAA?

Section 8A of the FBTAA allows for a car benefit provided by an employer to an employee to be an exempt benefit where certain conditions are met.

The ATO's Electric vehicles and fringe benefit tax publication states:

A fringe benefits tax (FBT) exemption may apply to a car benefit arising if either

•         you allow your current employees, or their associates, to use a zero or low emissions vehicle (electric vehicle) for their private use.

•         the electric vehicle is considered available for your current employees', or their associates', private use under FBT law

For the exemption to apply, all of the following requirements must be met:

a.    the benefit is a car benefit

b.    the vehicle must be a car, which is a zero or low emissions vehicle (vehicle requirements)

c.     the car was first held and used on or after 1 July 2022 (held and used date requirements)

d.    the car is used or available for private use by a current employee or their associates (including family members) (recipient requirements)

e.    no amount of luxury car tax (LCT) has become payable on the supply or importation of the car (LCT requirements).

Subsection 8A(1) of the FBTAA states that a car benefit will be exempt if:

(a)  the benefit is provided in the year of tax in respect of the employment of a current employee; and

(b)  the car is a zero or low emissions vehicle when the benefit is provided; and

(c)   no amount of luxury car tax (within the meaning of the A New Tax System (Luxury Car Tax) Act 1999) has become payable on a supply (within the meaning of that Act) or importation (within the meaning of that Act) of the car before the benefit is provided.

Paragraph 8A(1)(a) The benefit is provided in the year of tax in respect of the employment of a current employee

Per the facts, the provision of the EV has been provided for the directors use during the tax year with respect to their current employment as directors.

Paragraph 8A(1)(b) The car is a zero or low emissions vehicle when the benefit is provided

A zero or low emissions vehicle is defined under subsection 8A(2) as:

(a)  a battery electric vehicle; or

(b)  a hydrogen fuel cell electric vehicle; or

(c)   a plug-in hybrid electric vehicle

Per the specifications of the EV, the vehicle is battery operated and therefore would satisfy paragraph (a) and subsection 8A(2).

Paragraph 8A(1)(c) No amount of luxury car tax (within the meaning of the A New Tax System (Luxury Car Tax) Act 1999) has become payable on a supply (within the meaning of that Act) or importation (within the meaning of that Act) of the car before the benefit is provided

As per provided receipt of the purchase of the EV, the purchase price of the vehicle is $XXX. The luxury car tax threshold for the 2022-23 financial year was $84,916 for fuel efficient vehicles. As the price of the electric vehicle is below the LCT, the vehicle would satisfy paragraph 8A(1)(c) of the FBTAA.

Therefore, as the provision of the meets the definition of a 'car benefit' pursuant to section 7 of the FBTAA, and paragraphs 8A(1)(a) to 8A(1)(c) of the FBTAA would be satisfied under the scheme, the provision of this car by you to the directors in respect of their employment would constitute an exempt benefit pursuant to section 8A of the FBTAA.

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