Edited version of private advice

Authorisation Number: 1052361882119

Date of advice: 27 March 2025

Ruling

Subject: FBT - work-related items exempt benefit

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1997 (FBTAA) when the Employer provides an electric vehicle?

Answer 1

Yes.

Question 2

If yes, does the exemption in section 8A of the FBTAA apply in respect of the car benefit?

Answer 2

Yes.

Question 3

If yes, will the PSI rules in section 86-70 of the Income Tax Assessment Act 1997 (ITAA) apply in respect of an electric vehicle, if the Employer which is a personal services entity (PSE), is not a personal services business (PSB)?

Answer 3

Yes.

This ruling applies for the following periods:

FBT year ending 20XX

FBT year ending 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

This private ruling is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Employee is an employee and director of the Employer.

The Employer is a personal services entity (PSE) as its ordinary or statutory income includes the Personal Services Income (PSI) of the Employee.

The Employer does not pass one or more of the PSI tests in respect of the PSI of the employee and therefore, it is not a Personal Services Business (PSB).

As it is not a PSB, the Employer is subject to the PSI Measures in Part 2-42 of the ITAA.

The Employer intends to purchase a car, that will be used for both business and private purposes.

The Employer intends to provide the car to its employee for their private use.

The vehicle in question is a battery electric vehicle (BEV) valued under $XX,XXX. The value falls below the updated luxury car tax threshold for fuel-efficient vehicles of $XX,XXX for the 20XX-20XX FBT year.

The Employer will not own or lease any other cars.

Assumption

The EV meets all technical requirements to be classified as a zero or low emissions vehicle as per ATO guidelines.

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 section 8A

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

Fringe Benefits Tax Assessment Act 1986 subsection 8A(3)

Fringe Benefits Tax Assessment Act 1986 subsection 53(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 162(1)

Income Tax Assessment Act 1997 Part 2-42

Income Tax Assessment Act 1997 section 28-13

Income Tax Assessment Act 1997 section 86-60

Income Tax Assessment Act 1997 section 86-70

Income Tax Assessment Act 1997 subsection 86-70(1)

Income Tax Assessment Act 1997 subsection 86-70(2)

Income Tax Assessment Act 1997 subsection 86-70(3)

Income Tax Assessment Act 1997 section 995-1

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

Reasons for decision

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1997 (FBTAA) when the Employer provides an electric vehicle?

Detailed reasoning

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.

Conclusion

As the Employer will be providing a car which is taken to be available for the private use of the employee, the requirements in section 7(1) of the FBTAA have been satisfied.

Question 2

If yes, does the exemption in section 8A of the FBTAA apply in respect of the car benefit?

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 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:

(c)           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

(d)           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 the Employer will be providing a car benefit in accordance with subsection 7(1) of the FBTAA to the employee, 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 that 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)           a battery electric vehicle; or

(b)           a hydrogen fuel cell electric vehicle; or

(c)           a plug-in hybrid electric vehicle.

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

(a)           uses only an electric motor for propulsion; and

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

Application to your circumstances:

If the vehicle purchased is a 'car' as defined in section 136(1) of the FBTAA which uses an electric motor for propulsion and is not fitted with a fuel cell nor an internal combustion engine, the requirement of subsection 8A(3) will be met.

If the vehicle purchased is an electric vehicle with zero or low emissions in accordance with section 8A(2) of the FBTAA, this requirement will be 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 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 vehicle 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.

Application to your circumstances:

As the car will be both first held and used after 1 July 2022, this requirement will be met.

'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 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 held by a person; the car will not be at the employer's business previses and the employee is entitled to apply the car to private use. Therefore, this requirement will be met.

Luxury Car Tax (LCT)

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 20XX - 20XX for a fuel-efficient vehicle is $XX,XXX. If the vehicle in question is less than this amount, there is no LCT requirement.

Application to your circumstances:

The purchase price of the car is below $XX,XXX and is under the LCT threshold of $XX,XXX. No amount of LCT will become payable on the supply or importation of the car. Therefore, this requirement will be met.

Conclusion

Provided the car purchased satisfies each of the requirements in section 8A of the FBTAA, the provision of an electric vehicle to the employer's employee will be an exempt car benefit.

Question 3

If yes, will the PSI rules in section 86-70 of the Income Tax Assessment Act 1997 (ITAA) apply in respect of an electric vehicle, if Thinkwiser Pty Ltd ('the Employer') which is a personal services entity (PSE), is not a personal services business (PSB)?

Detailed reasoning

The PSI rules in section 86-70 of the ITAA can apply in respect of EVs, if the Employer which is a PSE, is not a PSB. Consequently, even if their cars are EVs, where private use is provided a PSE can only claim a deduction for one car which gives rise to a car expense or an amount of tax payable for a car fringe benefit, against the same individual's PSI. As the PSE will only have one car, it is unnecessary to make a choice as to which car is to be deducted. As the car will be an eligible EV, any FBT payable for a car fringe benefit, or any car expense benefits provided at the same time as the car benefit will be exempt from FBT.

PSI Rules

The PSI rules in Part 2-42 of the ITAA were introduced as an anti-avoidance measure aimed at individuals alienating their PSI income through an interposed entity, known as a PSE. The rules do not apply to a PSE, if it qualifies as a PSB. A PSB is an entity that passes one or more of the PSI tests, in respect of the individual who generates the PSI. This individual is known as the test individual.

Entitlement to deductions

The PSI rules include rules that limit a PSE's entitlement to deductions. Section 86-60 of the ITAA sets out a general rule for deduction entitlements, for a PSE that is not a PSB. Under the general rule, a deduction is only available to the PSE for an amount to the extent that it relates to gaining or producing an individual's PSI if the individual would have been entitled to deduct that amount if the same loss or outgoing had been incurred by the individual in the same circumstances as the PSE.

Section 86-70 car expenses

Section 86-70 deals specifically with a PSEs entitlement to car expenses deductions. Sub-section 86-70(1) provides that section 86-60 does not stop a PSE deducting a car expense for a car of which there is no private use. However, under sub-section 86-70(2) this exception is limited to just one car at any one time. If there is more than one car that gives rise to a car expense or an amount of tax payable for a car fringe benefit then under sub-section 86-70(3), the PSE must choose the car to which subsection (2) applies. The choice remains in effect until the PSE ceases to hold the car.

Private Use

As noted above, the PSI rule apply with respect to a car for which there is private use. The term 'private use' is defined in section 995-1 of the ITAA by reference to the definition of 'private use' in the FBTAA. The definition in subsection 136(1) of the FBTAA states that private use

in relation to a motor vehicle, in relation to an employee or associate, as the case may be, that is not exclusively in the course of producing assessable income of the employee.

Accordingly, a very small amount of private use will mean that a car falls within the one car rule in subsection 86-70(2). It is noted that this may be contrasted with the test for private use of a car in subparagraph 8(2)(b)(ii) of the FBTAA. This test requires that there is no private use, other than use that is minor, infrequent or irregular. It is considered that the three conditions in subparagraph 8(2)(b)(ii) allow for a greater amount of private use that that contemplated by subsection 86-70(2).

Car expenses

The term 'car expense' is defined in section 995-1 of the ITAA by reference to section 28-13 of the ITAA. This provides:

28-13(1)

A car expense is a loss or outgoing to do with a *car.

28-13(2)

In addition, any of the following is a car expense:

(a)           a loss or outgoing to do with operating a *car;

(b)           the decline in value of a car.

The term 'car expense' is also a defined term in the FBTAA. The FBT meaning provides that a car expense means an expense incurred in respect of:

(a)           the registration of, or insurance in respect of, the car

(b)           repairs to or maintenance of the car; or

(c)           fuel for the car.

The above meaning of car expense in the ITAA is broader than the meaning in subsection 136)1) of the FBTAA.

Application to your circumstances:

In this case, the Employer is a PSE as its ordinary or statutory income includes the PSI of the test individual, who is their employee. The company is not a PSB in respect of this PSI therefore, the PSI measures in Part 2-42 of the ITAA will apply. The Employer intends to purchase a car, that will be used for both business and private purposes. The car will be provided to the employee for their private use.

Under subsection 86-70(2) of the ITAA, the Employer is able to claim deductions for one car that is used partly or solely for private purposes. As only one car will be held and provided for private use, the Employer will not be required to make a choice under subsection 86-70(3) as to which car will be deducted.

As explained above, it is considered that the vehicle that is to be purchased will satisfy each of the requirements in section 8A of the FBTAA, the provision of the EV to the employee will be an exempt car benefit. Accordingly, no FBT will be payable in respect of the car benefit.

It is also noted that car expense benefits provided during the same time as a car benefit, regardless of whether the car benefit is subject to FBT or not, are exempt from FBT under subsection 53(1) of the FBTAA. These benefits may be provided as an expense payment, property, or residual benefit. As explained above, car expenses in the context of FBT are limited to expenses relating to:

•                     registration

•                     insurance

•                     repairs or maintenance

•                     fuel (including electricity to charge and run EVs).

The PSI rules in section 86-70 of the ITAA apply to cars that are eligible EVs, where a PSE is not a PSB. If there is private use of only one car, it is unnecessary to choose which car is deducted.

The EV FBT exemptions may apply to a car benefit that arises, and associated benefits arising from certain car expenses.

Conclusion

The PSI rules in section 86-70 of the ITAA97 will apply in respect of the EV. As explained above, the vehicle that is to be purchased is considered to be an eligible EV therefore, any amount of tax payable for the provision of a car benefit or the provision of FBT car expense benefits associated with the car benefit will also be exempt from FBT.