Edited version of private advice

Authorisation Number: 1052351079228

Date of advice: 27 March 2025

Ruling

Subject: FBT - car fringe benefit

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the employer provides a motor vehicle in respect to employee's employment?

Answer 1

Yes.

Question 2

Is the car benefit an exempt benefit under section 8A of the FBTAA where all the conditions in subsection 8A(1) of the FBTAA are satisfied?

Answer 2

Yes.

This ruling applies for the following periods:

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

The entity does not own a motor vehicle.

The entity has an arrangement with an unrelated company, whereby that unrelated company supplies a vehicle to the entity.

The minimum contract period is for XX months.

The vehicle can be swapped out after XX months as per the subscription terms and conditions.

The vehicle supplied to the entity is an electric/low emission vehicle.

The entity makes the vehicle available to their employee for use in performing their employment activities.

The vehicle is retained by the employee and is considered available for private use throughout the course of a financial year.

The entity's only cost incurred for the vehicle is a subscription fee, paid monthly to the third party.

The subscription fee includes the provision of the vehicle, registration, insurance and repairs and maintenance on/for the vehicle.

Being an electric vehicle, the entity does not incur any fuel costs in relation to the provision of the vehicle to the employee.

The employee arranges for the vehicle to be charged at their private residence.

Being a subscription arrangement, this agreement allows the employee to switch vehicles at any time.

The current vehicle used by the employee is a sedan (XXXX).

Should the employee choose to switch the vehicle, any future vehicle will also be of a sedan (or similar) variety.

The vehicle would not fall into a category of being an exempt vehicle (i.e. a utility vehicle or commercial van), other than for the fact that it is an electric/low emissions vehicle. If the employee is to switch the vehicle, it would only be replaced by a similar electric/low emissions vehicle.

EV Subscription with third party - Terms and Conditions

The Company operates the electric vehicle subscription service which enables employers and individual members of the public to use selected electric vehicles in exchange for a payment of a fee.

In addition to offering this service to members of the public, the Company offers this service to employees of a related entity on an arm's length basis. The employees are subject to the same terms and conditions as would be offered to non-employees (members of the public) in similar circumstances.

The Company will arrange for the car to be made available in accordance with the terms of the EV Subscription and each of the Company and the Employer is deemed to have executed the Novation Agreement, and therefore entered into, a Novated Subscription - Employer contract from the date of acceptance.

Employees enter into a subscription agreement (EV Subscription Contract) with the Company under which the employee hires a vehicle in exchange for payment of a periodic fee (Subscription fee). This covers the hire of the car, insurance, registration, servicing and roadside assistance.

Other charges payable by the employee under the EV Subscription Contract:

•                    An additional kilometre charge if the employee exceeds the kilometre allowance specified in the EV Subscription Contract.

•                    Early termination fee if the employee terminates the EV Subscription Contract within the minimum subscription period.

•                    Car detailing fee if the subscription period is less than the minimum subscription period.

•                    Administration fee for undertaking administration related tasks in respect of the EV subscription contract.

•                    Handover service fee if the car is not returned with greater than 90% charge for a battery electric vehicle or a full tank of petrol for a plug-in hybrid electric vehicle.

-              Collectively these are referred to as EV Subscription Charges.

The minimum hire term for each vehicle is XX months.

The Employee may swap vehicles if they make a down payment equivalent to the Upfront Joining Fee, however the down payment will not be required if the Employee hired the initial vehicle for more than six months and the Company does not have to do a special order. The swap vehicle is subject to new terms and conditions and a new hire term commences when the swap vehicle is delivered.

At the end of the hire term the Employee must return the vehicle to the Company on or before the end of the Maximum Subscription Period or the relevant termination notice period (whichever is earlier).

The Employee, Employer and the Company enter into an agreement whereby the rights, interests, benefits, liabilities, and obligations under the EV Subscription Contract are novated from the Employee to the Employer ('Novation Agreement').

The Employer assumes the liability to pay the EV Subscription Charges.

The Subscription Period for a car will start from the car handover date.

At the end of the hire term the Employee must return the vehicle to the Company on or before the end of the Maximum Subscription Period or the relevant termination notice period (whichever is earlier).

Assumptions

All relevant information regarding the make and model of the vehicle is provided to ensure the FBT liability can be accurately determined.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 7

Fringe Benefits Tax Assessment Act 1986 subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 subsection 7(2)

Fringe Benefits Tax Assessment Act 1986 subsection 7(3)

Fringe Benefits Tax Assessment Act 1986 subsection 7(7)

Fringe Benefits Tax Assessment Act 1986 section 8A

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

Fringe Benefits Tax Assessment Act 1986 subsection 9(1)

Fringe Benefits Tax Assessment Act 1986 subsection 9(2)

Fringe Benefits Tax Assessment Act 1986 subsection 10 (3)

Fringe Benefits Tax Assessment Act 1986 subsection 53(1)

Fringe Benefits Tax Assessment Act 1986 subsection 135P (1) (3)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

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

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

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) if the employer provides a motor vehicle in respect to employee's employment?

Summary

A car benefit will arise under section 7 of the FBTAA.

Detailed reasoning

A 'fringe benefit' as defined in subsection 136(1) of the FBTAA is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted.

Section 7 of the FBTAA sets out the circumstances in which the use of a car will be a fringe 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

Under a standard novated lease arrangement, an employer assumes all or part of the lessee's rights and obligations under the lease. This transfer of rights and obligations is agreed to in a deed of novation between the employer, the finance company and the lessee. The lessee is usually the employee, or an associate of the employee.

Cars under either a full novated lease or a split full novated lease are subject to the same car fringe benefit valuation rules as other cars an employer may lease.

Taxation Ruling 1999/15 (TR 1999/15) provides an explanation of full novation agreements:

25.          Full novation arrangements occurs when the employee takes out a finance lease for a car. The employee may then sub-lease the car to his/her employer. The finance lease (and sub-lease where one exists) is novated in full to the employee. The employer becomes the lessee and all the rights and obligations of the lease and any sub-lease are transferred to the employer. The finance lease and any sub-lease are rescinded (contractually extinguished) and replaced by a new novated lease arrangement. The employer becomes the lessee for this novation period.

26.          In a full novation and a split full novation the lease obligations are transferred to the employer. Accordingly, there are no income tax consequences for the employee during the period when the employer makes the lease payments.

27.          The employer becomes the lessee under the novated lease and is entitled to a deduction for lease expenses where the vehicle is used in the business or provided to an employee as part of a salary packaging arrangement. In the case of a luxury car the deduction is based on an accrual amount and depreciation, subject to the luxury car depreciation limit in section 42-80 of the ITAA 1997 (section 57AF of the ITAA 1936).

28.          On the happening of a termination event, such as the payment of the last lease payment under the novated lease or employment termination, a further novation may occur. Under the further novation the employer's subsiding rights and obligations are novated to the employee. The employee becomes lessee and is able to take this lease to another employer.

29.          A car benefit arises under Division 2 of the FBTAA in these novation's where the employer provides the car for the private use of the employee or associate of the employee.

Has a car fringe benefit been provided in the current circumstances?

In considering whether a car fringe benefit has been provided in the current circumstances under the novation agreement, each of the conditions as provided in subsections 7(1), 7(2), 7(3) and 7(7) of the FBTAA are discussed below.

Meaning of 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; leased to the person; or otherwise made available to the person by another person.

In terms of car subscription or hire arrangements, subsection 7(7) of the FBTAA provides that a reference to a car 'held' by a person does not include a reference to:

(a)           ...

(b)           a car let on hire to the provider under an agreement of a kind ordinarily entered into by persons taking cars on hire intermittently as occasion requires on an hourly, daily, weekly or other short-term basis unless the car has been or may reasonably be expected to be on hire under successive agreements of a kind that result in substantial continuity of the hiring of the car.

In considering the subscription arrangement satisfies the requirements of the FBTAA of a car being 'held' and therefore is a car fringe benefit, it must be determined if the arrangement is a 'car on hire intermittently as occasion requires on an hourly, daily, weekly or other short term basis.'

We do not believe the provision of a car under the subscription arrangement is a car on hire intermittently as occasion requires. Rather, a vehicle will be made available for a period of time for use for any purpose. In this way, we do not believe the arrangement is excluded from the definition of car fringe benefit by paragraph 7(7)(b) of the FBTAA.

In terms of the application of the subsection 7(7) qualification regarding 'holding' a car for short-term arrangements, the National Tax Liaison Group's (NTLG) FBT Sub-committee Minutes dated 15 June 1995 and the ATO's Fringe Benefits Tax - a guide for employers publication respectively prescribe that:

If you hire a car for less than three months, you are not considered to 'hold' the car and it will not result in a car fringe benefit. However, if you make a rental car or taxi available for the private use of an employee, and the car is hired for less than three months, a residual fringe benefit may arise ...

The ATO agreed that where the hire period is for 12 weeks or more, it will constitute a car fringe benefit. Less than 3 months it is to be treated as a residual fringe benefit.

This guidance is specific to short term car hire arrangements. However, in accepting a minimum 3-month period can constitute a car being 'held' for the proposed subscription arrangement, it is relevant to note this position is consistent with the minimum 3-month period accepted as constituting a car fringe benefit for short term car hire arrangements.

Is the motor vehicle a 'car'?

Subsection 136(1) of the FBTAA provides that a 'car' has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). That provision defines a 'car' as '... a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers.'

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

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 of a car and the employment of its employee, it is necessary to consider the circumstances in which the car will be provided.

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

Private use is detailed in section 7(2) of the FBTAA where it 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)            as 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.

Subsection 7(3) of the FBTAA deals with the availability of a car for an employee's private use when the car is not at the employer's business premises.

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.

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 (TD 94/16) states that where an employer's car is kept in safe storage at or near the employee's place of residence, it will be taken to be available for the employee's private use regardless of any prohibition on the use of the car.

Application to your circumstances

Where the EV under the Subscription Agreement is subscribed for by the Company and applied to a private use by the Employee, or is taken to be available for the private use of the Employee, the application or availability of the EV under an arrangement between the Employee, Employer and Company will give rise to a car fringe benefit.

The provision of a car to an employee is provided under a 'subscription' rather than a 'hire' arrangement. As a point of comparison, the Macquarie Dictionary Online defines 'subscription' to mean ...a monetary contribution towards some object or a payment for shares, a book, a periodical, etc.

Under the novated subscription the motor vehicle provided to the employee will meet the definition of a 'car' for the purposes of the FBTAA.

The provision by the employer of a car to an employee would be considered 'in respect of an employee's employment'.

As the Company will either be the person that owns the EV or the person to whom the EV is leased, the Company will hold the EV (and be the provider) for the purposes of section 7 of the FBTAA.

In light of this interpretation, it is accepted that a subscription car will be 'held' by the Company under a novation where the term of the subscription is for more than three months.

In consideration of the subscription arrangement of a minimum of 12 months, this satisfies the requirements of subsection 162 of the FBTAA of a car being 'held'.

Question 2

Is the car benefit an exempt benefit under section 8A of the FBTAA where all the conditions in subsection 8A(1) of the FBTAA are satisfied?

Summary

The provision of an EV to the Employee, is an exempt car benefit under section 8A of the FBTAA where all of the conditions in subsection 8A(1) are satisfied.

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 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

(c)           the car was fist 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'

As a car benefit will be provided in accordance with subsection 7(1) of the FBTAA to the Employee as a result of employment, 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 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, a car benefit is an exempt benefit in relation to a year of tax if 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 battery electric vehicle; or

­        a hydrogen fuel cell electric vehicle; or

­        a plug-in hybrid electric vehicle.

Subsection 8A(3) of the FBTAA provides that a battery electric vehicle is a motor vehicle that:

­        uses only an electric motor for propulsion; and

­        is fitted with neither a fuel cell nor an internal combustion engine.

'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 electric cars 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 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.

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 electric vehicle for which LCT has become payable at any stage is not eligible for the exemption. Generally, LCT has to 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 in the course of 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 2024-25 financial year, for a fuel-efficient vehicle is $91,387. If the vehicle in question is less than this amount, there is no LCT payable.

Application to your circumstances

The Employer will provide a vehicle that is an electric/low emissions vehicle. The car benefit will be an exempt benefit under section 8A of the FBTAA where all the conditions in subsection 8A are satisfied.