Edited version of private advice

Authorisation Number: 5010091270274

Date of advice: 21 August 2023

Ruling

Subject: Exempt car benefit

Question

Is the provision of an electric vehicle to an employee under a novated associate lease an exempt car benefit pursuant to section 8A of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

This ruling applies for the following periods:

1 April 2023 - 31 March 2024

1 April 2024 - 31 March 2025

1 April 2025 - 31 March 2026

1 April 2026 - 31 March 2027

The scheme commences on:

1 August 2023

Relevant facts and circumstances

The employer intends to provide a leased vehicle to its employee. The employer enters into an associated lease arrangement with an associate of the employee, being the employee's spouse.

As the associate is the owner of the vehicle, the associate is the lessor.

The vehicle is a 'car' as defined for the purposes of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

It is anticipated the lease will commence on August 2023.

The proposed lease agreement is a bona fide lease.

The electric vehicle is a Tesla Model Y, which was purchased for $X.

The electric vehicle is fully electric and will be first held in 2023. There is no LCT payable on the electric vehicle.

The parties involved are the leasing company, the employer, the employee and the associate of the employee.

The lease will be a 'fully maintained' operating lease - that is, the associate/lessor will bear all running costs (including insurance, registration, servicing, repairs, and fuel) associated with the vehicle.

Under the proposed arrangement:

      I.        The lessor is the registered owner of the vehicle.

    II.        The lessor agrees to grant a lease of the vehicle to the lessee pursuant to the terms of the proposed agreement.

   III.        The lessee agrees to take a lease of the vehicle from the lessor.

  IV.        The lessor agrees that the lessee will grant rights of use of the vehicle to the employee pursuant to the terms of the proposed agreement.

    V.        The lessee and employee agree that the lessee will deduct the costs associated with the lease from the employee's salary pursuant to the terms of the agreement.

  VI.        The leasing company will establish and administer the associate lease arrangement pursuant to the terms of the agreement.

The employer/lessee will provide the use of the car to the employee and the associate/lessor.

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)

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

Reasons for decision

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 fringes 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:

(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 the employer will be providing a car benefit in accordance with subsection 7(1) of the FBTAA to the employee by entering an associated 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 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 motor cycle 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.

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:

The Tesla Model Y vehicle purchased is a car as defined in subsection 136(1) of the FBTAA because it is a road vehicle designed to carry a load of less than one tonne and fewer than nine passengers.

The car uses an electric motor for propulsion and is not fitted with a fuel cell nor an internal combustion engine. Therefore, the requirement of subsection 8A(3) is met.

The Tesla Model Y is an electric vehicle with zero or low emissions in accordance with section 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' n 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.

Application to your circumstances:

The car was purchased new and will be first held in 2023. The car will be both first held and used after 1 July 2022. Therefore, this requirement has been 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 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 held by a person, the car is not at the employer's 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 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 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:

The purchase price of the car is under the Luxury car tax threshold of $84,916. No amount of LCT has become payable on the supply or importation of the car. Therefore, this requirement has been met.

Conclusion

As each of the requirements in section 8A of the FBTAA have been satisfied, the provision of an electric vehicle to the employer's employee under a novated associate lease is an exempt car benefit.