Edited version of private advice

Authorisation Number: 1052370666136

Date of advice: 14 March 2025

Ruling

Subject: Plug-in hybrid electric vehicle

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') for the provision by the Employer, of a Plug-in Hybrid Electric Vehicle (PHEV) for an employee's private use, pursuant to a vehicle hire agreement?

Answer

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

Yes.

Question 3

Will the exemption in section 8A of the FBTAA continue to apply after 1 April 2025 for the life of the vehicle hire agreement, if the agreement to provide the specified PHEV by the Employer to a nominated Employee is entered into prior to 1 April 2025?

Answer

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 commences on:

1 April 20XX

Relevant facts and circumstances

The employer owns or leases various Plug-In-Hybrid Electric Vehicles (PHEVs).

The employer intends, prior to 31 March 20YY, to enter into vehicle hire agreements with employees for 100% private use of a PHEV by that employee for the term of the vehicle hire agreement.

The vehicle hire agreement template has been provided.

The cars are provided to employees for private use, were first used after 1 July 20YY and none of the vehicles attract luxury car tax.

The rent payable under the vehicle hire agreement is subject to a fixed weekly amount which takes into consideration a bundle of expenses related to the registration, insurance and running costs of the PHEV.

Depending on the employee's employment conditions adjustments may be made to the rent amount depending on the actual costs compared to the allowance amount.

The vehicle hire agreement creates a binding financial commitment between the employer and the employee for the provision of the PHEV for private use for the term of the agreement, The agreement is entered into on or before 31 March 20YY.

The employee is bound to make rent payments pursuant to the vehicle hire agreement and the employer is bound to continue to provide the PHEV to the employee for the term of the vehicle hire agreement.

The leaseback period will be for a maximum of four years.

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)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 162(1)

Fringe Benefits Tax Assessment Act 1986 subsection 148(1)

Treasury Laws Amendment Act 2022 No.86 Schedule 2

Reasons for decision

Issue

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') for the provision by the employer, of a Plug-in Hybrid Electric Vehicle (PHEV) for an employee's private use, pursuant to a vehicle hire agreement?

Summary

A car benefit is being provided to the employee 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

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, each of the conditions as provided in subsections 7(1), 7(2), 7(3) and 7(7) of the FBTAA are discussed below.

Will the car be 'held' by the provider?

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)              a car used for taxi travel (other than a limousine) let on hire to the provide; or

(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 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.

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

The employer owns the vehicles and therefore it is considered that the vehicles will be 'held' by the employer and under the vehicle hire agreement between the employer and employee, the vehicle will continue to be held for a period greater than 3 months.

The vehicles, provided to the employees meet the definition of a 'car' for the purposes of the FBTAA.

As stated in the facts, the employer will provide a car to an employee under the vehicle hire agreement. As such, it is clear that the provision by the employer of a car to an employee would be considered to be 'in respect of an employee's employment'.

As each of the applicable conditions in section 7 of the FBTAA are satisfied, the vehicle hire agreement between the employee and the employer gives rise to a car fringe benefit.

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

Yes, the car benefit is considered an exempt benefit under 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 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'

As detailed in question 1, a car benefit does arise under section 7 of the FBTAA.

'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)              a battery electric vehicle; or

(b)              a hydrogen fuel cell electric vehicle; or

(c)              a plug-in hybrid electric vehicle.

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

Application to your circumstances

The employer has multiple vehicles available under the vehicle hire agreement. These vehicles are PHEVs and were considered low emission vehicles prior to 31 March 20YY. The vehicles were first held and used after 1 July 20YY and will be available for private use as per the vehicle hire agreement. These vehicles did not have luxury car tax applied to them.

Therefore, the car benefit is considered an exempt benefit under section 8A of the FBTAA.

Question 3

Will the exemption in section 8A of the FBTAA continue to apply after 1 April 2025 for the life of the vehicle hire agreement, if the agreement to provide the specified PHEV by the Employer to a nominated Employee is entered into prior to 1 April 2025?

Summary

For the FBT exemption to continue to apply after 31 March 2025, there must be a financially binding commitment between the employer and employee to continue to provide the private use or availability for private use, of a particular car after 31 March 2025.

Detailed reasoning

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.

Therefore, as of 1 April 2025 PHEVs will not be considered low emission vehicles. The exemption will continue to apply if both the following requirements are met:

1.            Use of the PHEV 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.

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

As detailed in question 2, the vehicles were exempt before 1 April 2025.

You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

There is a financially binding commitment between an employer and an employee to continue to provide a car benefit where there is a contractual agreement in respect of:

•                     a specified vehicle ie. Details provided of make/model/registration

•                     the specified vehicle is provided to a nominated employee; and

•                     the arrangement is for a specified and reasonable period of time.

Application to your circumstances

In your case, your vehicle hire agreement provide details of the specific car and nominated employee.

As the vehicles were an exempt car benefit prior to 1 April 2025 and the vehicle hire agreement is considered a 'financially binding agreement' as it meets the requirements above, the exemption under section 8A will continue to apply for the period of the agreement, unless there is a change in the terms which results in a new commitment.