Edited version of private advice

Authorisation Number: 1052199231540

Date of advice: 10 April 2024

Ruling

Subject: Electric vehicle subscription contract

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') where an EV Subscription Contract is entered into by an Employee and the Company and a Novation Agreement is subsequently entered into, novating the rights and obligations existing under the EV Subscription Contract from the Employee to the Employer?

Answer

Yes.

Question 2

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

Answer

Yes.

Question 3

When calculating the taxable value of the car fringe benefit for purposes of calculating the employee's individual fringe benefits amount under section 135P of the FBTAA:

(a)  Would the base value of the car under the statutory formula method pursuant to subsection 9(2)(a)(ii) of the FBTAA, equate to the leased car value of the car at the earliest holding time?

(b)  Would the operating cost of the car under the operating cost method pursuant to subsection 10(3)(a) of the FBTAA, include the EV Subscription Charges?

Answer

(a)  Yes.

(b)  Yes.

Question 4

Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the aggregated fringe benefits taxable amount to the Employer, by the amount of tax benefit gained from the provision of an exempt zero or low emissions vehicle by the Employer to an Employee?

Answer

No

This ruling applies for the following periods:

FBT year ending 31 March 2024

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

FBT year ending 31 March 2028

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

The Company provides EV Subscription Services for employers who wish to make EV Subscriptions available to their employees under novated arrangements.

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

­   These are referred to as EV Subscription Charges.

The minimum hire term for each vehicle is three 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 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 Employer makes the vehicle available for use by the Employee and the Employee's associates (as defined in the FBTAA) as part of the Employee's remuneration package and, via an effective salary sacrifice arrangement, deducts the EV Subscription Charges from the Employee's pre-tax remuneration.

The Novation Agreement specifically excludes certain obligations which remain with the Employee, including Upfront Joining Fee, EV charging station Charger Fee and Tolling charges ('Excluded Obligations').

The Excluded Obligations are not paid for or reimbursed by the Employer.

The novation reverses on the earliest of a number of events happening, including the date the Novated EV Subscription Contract ends, the date on which the Company receives notice from the Employer that the Employee's employment has ended and the date on which the Employee dies.

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

Question 1

Does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') where an EV Subscription Contract is entered into by an Employee and the Company and a Novation Agreement is subsequently entered into, novating the rights and obligations existing under the EV Subscription Contract from the Employee to the Employer?

Answer

Yes.

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.

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)  ...

(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 if the proposed 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 proposed 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 Fringe Benefits Tax Assessment Act 1986 (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 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.

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.

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

As stated in the facts, the Company will provide a car to an employee under an effective novated subscription arrangement. As such, it is clear that the provision by the Company of a car to an employee would be considered to be 'in respect of an employee's employment'.

A car held by the Company that is salary-sacrificed by an employee of the Company (under a Novated Subscription arrangement) will be deemed for the purposes of subsections 7(2) and 7(3) of the FBTAA to be available for the private use of the employee whilst the car is garaged at the employee's place of residence.

As each of the applicable conditions in section 7 of the FBTAA are satisfied, the novation of a subscription agreement between the Employee and the Company (as the subscription facilitator) 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?

Answer

Yes.

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.

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.

'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 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 Company have various vehicles that will be on offer to enter into a Subscription Agreement. The car benefit will be an exempt benefit under section 8A of the FBTAA where all the conditions in subsection 8A(1) are satisfied.

Question 3

When calculating the taxable value of the car fringe benefit for purposes of calculating the employee's individual fringe benefits amount under section 135P of the FBTAA:

(a) Would the base value of the car under the statutory formula method pursuant to

subsection 9(2)(a)(ii) of the FBTAA, equate to the leased car value of the car at the

earliest holding time?

(b) Would the operating cost of the car under the operating cost method pursuant to

subsection 10(3)(a) of the FBTAA, include the EV Subscription Charges?

Answer

(a)   Yes

(b)   Yes

Detailed reasoning

Even though a car benefit in respect of a zero or low emissions vehicle is exempt from FBT, a reportable fringe benefit arises.

Section 135P(1) states how to determine if an employee has a reportable fringe benefits amount:

An employee has a reportable fringe benefits amount for a year of income in respect of the employee's employment by an employer if the employee's individual fringe benefits amount for the year of tax ending on 31 March in the year of income in respect of the employee's employment by the employer is more than $2,000.

Exempt car benefits for zero or low emissions vehicles are included, as stated in section 135P(3):

In working out the employee's individual fringe benefits amount for the purposes of this section, disregard section 8(A) (Exempt car benefits: zero or low emissions vehicles).

For the purposes of calculating the taxable value of any car fringe benefit provided to the Employee using the statutory formula method, the base value of the EV subscribed for is determined by reference to paragraph 9(2)(a).

For the purposes of calculating the taxable value of any car fringe benefit provided to the Employee using the operating cost method, the operating costs will include the fees and any operational costs incurred by the Employer.

Statutory Formula Method

Subject to Section 9(1) of the FBTAA, where one or more car fringe benefits in relation to an employer in relation to a year of tax relate to a particular car held by a particular person (in this section referred to as the provider), the taxable value of that fringe benefit, or the aggregate of the taxable values of those fringe benefits, as the case may be, in relation to that year of tax, is the amount calculated in accordance with the formular:

[0.2 × Base value of the car × Number of days during that year of tax on which the car fringe benefits were provided by the provider ÷ Number of days in that year of tax] - Amount (if any) of the recipient's payment

For the purposes of Section 9(2):

(a)  The base .value of the car is the sum of:

(i)     Where, at the earliest holding time, the car was owned by the provider or an associate of the provider, the amount calculated in accordance with the formula AB, where:

A is the cost price of the car to the provider or associate, as the case may be; and

B is:

(A)  In a case where the commencement of the year of tax is later than the fourth anniversary of the earliest holding time - 2/3; or

(B)  In any other case -1; and

(ii)    In the case to which subparagraph (i) does not apply - the amount calculated in accordance with the formula AB, where:

A is the leased car value of the car at the earliest holding time;

B is:

(A)  in a case where the commencement of the yar of tax is later than the fourth anniversary of the earliest holding time - 2/3; or

(B)  in any other case -1; and

(iii)     The cost price of each non-business accessory that:

A was fitted to the car after the earliest holding time and before the end of the year of tax; and

B remained fitted to the car at a time during the year of tax when the car was held by the provider

Subsection 136(1) of the FBTAA defines 'leased car value' as:

In relation to a car held but not owned by a person at a particular time, means:

(a)  In a case to which paragraph (b) does not apply - the amount that the person could reasonably be expected to have been required to pay to purchase the car from the owner at that time under an arm's length transaction; or

(b)  If the person commenced to lease the car at that time from a lessor who purchased the car at or about that time - the cost price of the car to the lessor.

Subsection 136(1) of the FBTAA defines 'cost price' as:

(a)  In relation to a car owned by a person, means:

(i)     Where the car was manufactured by the person - the amount for which the car could reasonably have been expected to have been sold by the person by wholesale under an arm's length transaction at or about the time when the car was applied to the person's own use; or

(ii)      Where neither subparagraph (i) nor (ii) applies, an amount equal to the sum of:

(A)  The expenditure incurred by the person (other than expenditure in respect of registration or in respect of a tax on, or on a transfer of, registration) that is directly attributable to the acquisition or deliver of the car or, if subsection 7(6) applies in relation to the car, the leased car value of the car when the person first took the car on hire; and

(B)  The amount of any additional expenditure incurred by the person for or in relation to the fitting on non-business accessories to the car at or about the time when the car was acquired by the person, reduced by the amount of any reimbursement of the whole or a part of that expenditure paid, at or about the time when the expenditure was incurred, by a recipient of a car benefit in relation to the car; or

(iii)   Where subparagraph (i) does not apply and the person was entitled to privileges or exemptions in relation to customs duty in respect of a transaction by which the person acquired the car or by which the person arranged for the fitting of non-business accessories to the car at or about the time when the car was acquired by the person, the amount that could reasonable have been expected to have been applicable under subparagraph (ii) if the person had not been entitled to those privileges to exemptions

Application to your circumstances

Under the Novation Agreement, the Employer will be the provider of the car and the lease is transferred from the Employee to the Employer. Consequently, as the car is leased by the provider, the 'base value' is determined under subsection 9(2)(ii) of the FBTAA, using the 'leased car value' of the car at the earliest holding time.

Where the car was purchased by the Company at or about the time the Employer commenced to lease the car under the Novation Agreement, the 'leased car value' is the 'cost price' of the car to the company.

If the Company is able to obtain cars at a cost price below the price which is generally available to members of the public, for example as a result of fleet discounts, the cost price and 'leased car value', is the reduced cost price to the Company, inclusive of GST.

Where the car was not purchased by the Company at or about the time the Employer commenced to lease the car under the Novation Agreement, the 'leased car value' is the amount that the Company could reasonably be expected to pay to purchase the car under an arm's length transaction - the market value of the car.

Operating Cost Method

Subsection 10(3)(a) of the FBTAA provides that the 'operating cost' of the car includes:

(i) any 'car expenses' (other than insured repair expenses or expenses in respect of registration and insurance) relating to the car incurred during the holding period;

(ii) so much of any expense paid or payable in respect of the registration of, or insurance in respect of, the car as is attributable to the holding period;

(v) ... so much of the charges paid or payable under the lease agreement as is attributable to the holding period;

Subsection 136(1) of the FBTAA defines car expenses as:

(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.

Application to your circumstances

The EV Subscription Contract includes the following costs which are payable under the lease agreement:

•         The Subscription Fee, which covers repairs, maintenance, registration, insurance, and lease charges;

•         The additional kilometre charge;

•         Early termination fee;

•         Car detailing fee;

•         Administration fee; and

•         Handover Service fee.

The operating costs of the car under subsection 10(3)(a) of the FBTAA includes the EV Subscription Charges as they are charges payable under the lease agreement.

Question 4

Will the Commissioner seek to make a determination that section 67 of the FBTAA applies to increase the aggregated fringe benefits taxable amount to the Employer, by the amount of tax benefit gained from the provision of an exempt zero or low emissions vehicle by the Employer to an Employee?

Answer:

No.

Detailed reasoning:

Provided that the scheme ruled on is entered into and carried out as described in this Ruling, the anti-avoidance provision in section 67 of the FBTAA will not apply to the Employer.

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