Edited version of private advice

Authorisation Number: 1052313778355

Date of advice: 9 October 2024

Ruling

Subject: FBT - plug-in hybrid electric vehicle

Question:

Will the employer be able to continue to apply for an FBT exemption for the plug-in hybrid electric vehicle (PHEV) from 1 April 20YY onwards if the vehicle is purchased outright prior to 1 April 20YY and the vehicle is exempt prior to 1 April 20YY in accordance with section 8A of Fringe Benefit Tax Assessment Act 1986 (FBTAA)?

Answer:

No.

This private ruling applies for the following period:

FBT year ending 31 March 20YY

The scheme commenced on:

1 April 20YY

Relevant facts and circumstances

The company, XXX, plans to purchase a plug-in hybrid electric vehicle (PHEV) and provide it to their employee.

The PHEV would be purchased outright before 1 April 20YY.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 section 8A

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

Treasury Laws Amendment Act 2022 No.86 Schedule 2

Explanatory Memorandum to Taxation Laws Amendment (2011 Measure No.5) Act 2011

Reasons for decision

These reasons for decision accompany the Notice of private ruling for XXX.

This is to explain how we reached our decision. This is not part of the private ruling.

Issue

Question

Will the employer be able to continue to apply for an FBT exemption for the plug-in hybrid electric vehicle (PHEV) from 1 April 20YY onward if the vehicle is purchased outright prior to 1 April 20YY and the vehicle is exempt prior to 1 April 20YY in accordance with section 8A of Fringe Benefit Tax Assessment Act 1986 (FBTAA)?

Summary

For the FBT exemption to continue after 31 March 20YY, there must be a financially binding commitment, and that commitment must relate to the private use or availability for private use, of the car to an employee or their associate.

When an employer owns a car, there is no financially binding commitment in respect of the provision of the car benefit for a fixed period of time.

Detailed reasoning

Section 8A(1) of FBTAA states that a car benefit is an exempt benefit in relation to the year of tax 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.

Section 8A(2) of FBTAA explains that a zero or low emission vehicle is:

(a)           a battery electric vehicle; or

(b)           a hydrogen fuel cell electric vehicle; or

(c)           a plug-in hybrid electric vehicle.

Section 8A(2) was amended by No. 86 Schedule 2 item 5 of Treasury Laws Amendment Act 2022 (No.86, 2022) whichexplains the application of the amendments:

(1)           The amendments of the Fringe Benefits Tax Assessment Act 1986 made by this Schedule apply to benefits provided on or after 1 April 2025.

(2)           Despite subitem (1), the amendments do not apply to the application or availability of a car at a particular time (the relevant time) on or after 1 April 2025 if:

(a)           the application or availability constitutes a car benefit because of subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986; and

(b)           before 1 April 2025, the employer, the employee, or an associate of the employer or of the employee, committed to the application or availability of the car, in respect of the employment of the employee by the employer, for a period that began before 1 April 2025 and includes the relevant time; and

(c)           at no time on or after 1 April 2025 and before or at the relevant time did the employer, the employee, or an associate of the employer or of the employee, commit to the application or availability of the car, in respect of the employment of the employee by the employer, for a period that includes the relevant time; and

(d)           before 1 April 2025 a car benefit relating to the car was provided; and

(e)           the car benefit referred to in paragraph (d) of this subitem was an exempt benefit in relation to a year of tax because of section 8A (Exempt car benefits: zero or low emissions vehicles) of that Act.

The application of the amendment means that the FBT exemption will apply if both the following requirements are met:

1.           Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025 and

2.           You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any optional extension of the agreement is not considered binding.

The term of commitment as defined in The Explanatory Memorandum to Taxation Laws Amendment (2011 Measures No 5) Act 2011, which introduced the statutory fraction changes, explains:

5.50 The reforms will apply to all car fringe benefits......, unless it can be proved that there was a pre-existing commitment in place to provide a car.

5.51 A commitment is considered entered into at the point that there is a commitment to the transaction, and it cannot be backed out of. The commitment needs to be financially binding on one or more parties.

5.52 Changes made ... such as refinancing a car, altering the duration of an existing contract or changing employers, are new commitments and will therefore be subject to the new arrangements.

5.53 If, however, the amendments do not apply in relation to a car, in relation to an employer, at the start of an FBT year (or from the time the car was first held if that happens after the beginning of the year), and the amendments begin to apply in relation to that car, in relation to that employer during that FBT year, the amendments will instead begin to apply from the start of the next FBT year.

Under the Amendment No.86, 2022, as the purchase of the PHEV is made outright prior to 1 April 2025, there will be no financially binding commitment.

In your situation

As the company will be providing a current employee with a PHEV that will be purchased outright prior to 1 April 20YY there will be no financially binding commitment between the parties.

An employer who owns a car outright prior to 1 April 20YY does not have a financially binding commitment in respect of the provision of the car benefit for a fixed period of time.

Therefore, the PHEV will not be an exempt car benefit in accordance with Section 8A of FBTAA and amendment No 86,2022.

Conclusion

The exemption will not apply after 1 April 20YY as there is no financially binding commitment between the parties to provide private use or the availability for private use of the car to an employee or associate.