Edited version of private advice

Authorisation Number: 1052166273374

Date of advice: 19 September 2023

Ruling

Subject: FBT - second hand vehicles

Question 1

Where the Company provides a second-hand imported electric vehicle (EV) to their employees, either through salary packaging or novated leasing, will that EV qualify for an exemption under section 8A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provided it was first held and available for use in Australia on or after 1 July 2022?

Answer

No.

Question 2

Where the Company acquires second-hand imported EVs as trading stock and sells them to employers for the purposes of providing their employees with a car fringe benefit, either through salary packaging or novated leasing, will that EV qualify for the exemption under section 8A of the FBTAA, provided it was first held and available for use in Australia on or after 1 July 2022?

Answer

No.

This ruling applies for the following period

FBT year ending 31 March 2023

The scheme commenced on:

1 April 2022

Relevant facts and circumstances

The Company buys second-hand EVs from overseas and imports them to Australia.

The second-hand vehicles are imported into Australia after 1 July 2022.

The EV's were first and held and used prior to 1 July 2022 in an overseas country.

The EVs are zero or low emissions vehicles.

The Company handles all the importation, transportation, payments and registration of the EVs before receiving vehicle import approval from the Australian Government.

Once the EV arrives in Australia and has cleared customs, the Company inspects the vehicle and lodges all relevant paperwork.

Up until delivery of the EV, the car is covered by the Company's comprehensive transport insurance.

The business model is that the cost of acquisition and importation is such that the retail value of the car sold by the Company to an employer is less than $84,916 being the Luxury Car Tax (LCT) threshold for the 2023 financial year for fuel efficient vehicles.

EVs that are kept by the Company are provided to employees through a salary packaging or novated leasing arrangement and is provided in the year of tax in respect of the employment of a current employee commencing from 1 July 2022.

Other second-hand EVs are then sold by the Company to unrelated parties, often employers. Where an unrelated party is an employer who provides their employees with a car fringe benefit (either from direct purchase of the car or via a salary packaging or novated lease).

No amount of LCT (within the meaning of the A New Tax System (Luxury Car Tax) Act 1999) has become payable on a supply or importation of any car.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 Section 8A

Fringe Benefits Tax Assessment Act 1986 Subsection 8A(2)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 162(1)

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

A New Tax System (Luxury Car Tax) Act 1999 Section 25-1

Reasons for decision

Question 1

Where the Company provides a second-hand imported EV to their employees, either through salary packaging or novated leasing, will that EV qualify for an exemption under section 8A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provided it was first held and available for use in Australia on or after 1 July 2022?

Summary

The exemption will not apply as the car does not meet the 'first held and made available for use after 1 July 2022' condition in section 8A of the FBTAA.

Detailed reasoning

Section 8A of the FBTAA provides an exemption for the private use of cars that are zero or low emission vehicles. The requirements of section 8A are outlined in the ATO Fact Sheet entitled 'Electric vehicles and fringe benefits tax', which states that for the exemption to apply, all 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

c) the car was first held and used on or after 1 July 2022

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

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

'The benefit is a car benefit'

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

Subsection 7(1) of the FBTAA describes what constitutes a 'car benefit'.

7(1) 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.

Application to your circumstances:

As you will be providing a car benefit in accordance with subsection 7(1) of the FBTAA to the employee by entering a salary sacrifice arrangement or novated lease arrangement, this requirement has been met.

'The vehicle must be a car, which is a zero or low emissions vehicle'

A 'car' is defined in section 136(1) of the FBTAA to have the meaning in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). That is, any motor-powered road vehicle (including four-wheel drive but excluding a motorcycle or similar vehicle) being:

•         a station wagon, panel van, utility truck or similar vehicle designed to carry a load of less than one tonne, or

•         any other road vehicle designed to carry a load of less than one tonne and fewer than nine passengers.

As explained in paragraph 8A(1)(b) of the FBTAA, one of the conditions for a car benefit to constitute an exempt benefit in relation to a year of tax is that the car is a zero or low emissions vehicle when the benefit is provided.

Subsection 8A(2) of the FBTAA states a 'zero or low emissions vehicle' is:

(a) a battery electric vehicle; or

(b) a hydrogen fuel cell electric vehicle; or

(c) a plug-in hybrid electric vehicle.

Application to your circumstances:

The facts for this ruling provide that the vehicles are EVs with zero or low emissions, which satisfies subsection 8A(2) of the FBTAA. Therefore, this requirement has been met.

'The car was first held and used on or after 1 July 2022'

The definition of a 'car benefit' in subsection 7(1) of the FBTAA, as outlined above, includes reference to a car being 'held' by a person.

Under subsection 162(1) of the FBTAA, a car is 'held' by a person if the car is owned by the person (including EVs acquired under hire-purchase arrangements); leased to the person (or let on hire); or otherwise made available to the person by another person. An electric car is not considered to be held where it is owned by the employee themselves and not by the employer or their associate.

The exemption in section 8A of the FBTAA only applies to benefits provided on or after 1 July 2022, for eligible electric cars that are both first held and used on or after 1 July 2022. Electric cars in use prior to 1 July 2022 are not eligible for the exemption.

The Explanatory Memorandum to the Treasury Laws Amendment (Electric Car Discount) Bill 2022 at paragraph 1.17 says:

... A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022.

Application to your circumstances

The EVs are second-hand vehicles imported to Australia from overseas. They are imported into Australia after 1 July 2022 and first held and used in Australia after 1 July 2022. The exemption will only apply if the first time that both tests is met is after 1 July 2022. In these circumstances the EV is both held and used prior to 1 July 2022.

'The car is used or available for private use by a current employee or their associates (including family members)'

As explained in Chapter 7.4.1 of the ATO's 'Fringe Benefits Tax - A Guide for Employers' publication, 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.

A car will not be taken to be available for the employee's private use where:

• the car is somewhere other than your business premises (such as in a commercial storage facility)
• the custody and control of the car has been removed from the employee, and
• the employee is not entitled to use the car for private use.

Subsection 7(3) of the FBTAA states:

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 not at business premises of:

(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;

(c) any of the following conditions is satisfied:

(i) the employee is entitled to apply the car to a private use;

(ii) the employee is not performing the duties of his or her employment and has custody or control of the car;

(iii) an associate of the employee is entitled to use, or has custody or control of, the car;

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.

Application to your circumstances:

The car will be used or available for private use by a current employee or their associate as the car is being provided under a valid salary sacrifice arrangement held by a person; the car is not at your business premises and the employee is entitled to apply the car to private use. Therefore, this requirement has been met.

LCT requirements

Section 25-1 of the A New Tax System (Luxury Car Tax) Act 1999 defines a 'luxury car' as a car whose LCT value exceeds the LCT threshold.

Subsection 25-1(4) defines the LCT threshold for fuel efficient cars as follows:

If the car has a fuel consumption not exceeding 7 litres per 100 kilometres as a combined rating under national road vehicle standards in force under section 12 of the Road Vehicle Standards Act 2018, the luxury car threshold is the fuel-efficient car limit for the year in which the supply of the car occurred, or the car was entered for home consumption.

An EV for which LCT has become payable at any stage is not eligible for the exemption. Generally, LCT must be paid if the value of the vehicle is above the LCT threshold for fuel-efficient vehicles and either:

• you are registered or required to be registered for goods and services tax and you sell or import a luxury car during your business - this includes retailers, wholesalers, manufacturers and other businesses that sell luxury cars, or
• you are an individual (private buyer) who imports a luxury car.

The LCT threshold for 2022-23 for a fuel-efficient vehicle is $84,916. If the vehicle in question is less than this amount, there is no LCT requirement.

Application to your circumstances:

You have informed us that the importation cost for each EV is under the LCT threshold of $84,916 and that no amount of LCT has become payable on the supply or importation of the car. Therefore, this requirement has been met.

Conclusion

As all of the requirements in section 8A of the FBTAA have not been satisfied, the provision of an EV to your employee, either through salary packaging or novated leasing, is not an exempt car benefit.

Question 2

Where the Company acquires second-hand imported EVs as trading stock and sells them to employers for the purposes of providing their employees with a car fringe benefit, either through salary packaging or novated leasing, will that EV qualify for the exemption under section 8A of the FBTAA, provided it was first held and available for use in Australia on or after 1 July 2022?

Summary

The exemption will not apply as the car does not meet the 'first held and made available for use after 1 July 2022' condition in section 8A of the FBTAA.

Detailed reasoning

The relevant law as outlined in detail in the response to question 1 is also relevant to this question.

As determined in question 1 the provision of a second-hand EV sold by the Company to other employers for their employees to use does not meet all the requirements of section 8A of the FBTAA. These employers would not be eligible for the EV exemption as they do not meet the 'first held and first used after 1 July 2022' condition.

Conclusion

As all of the requirements in section 8A of the FBTAA have not been satisfied, the provision of an EV to employers for the purposes of providing their employees with a car fringe benefit, under either salary packaging or novated leasing, is not an exempt car benefit.