Edited version of private advice

Authorisation Number: 1051935519204

Date of advice: 22 December 2021

Ruling

Subject: E-scooter and e-skateboards - exempt residual benefits

Question 1

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a car benefit for the purposes of subsection 7(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No.

Question 2

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a property benefit for the purposes of section 40 of the FBTAA?

Answer

No.

Question 3

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a residual benefit for the purposes of section 45 of the FBTAA?

Answer

Yes.

Question 4

If providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitutes a residual benefit, is this an exempt residual benefit for the purposes of subsection 47(6) of the FBTAA?

Answer

No.

This ruling applies for the following periods:

FBT year ending 31 March 2022

FBT year ending 31 March 2023

FBT year ending 31 March 2024

FBT year ending 31 March 2025

The scheme commences on:

1 April 2021

Relevant facts and circumstances

The Applicant provides salary packaging administration for businesses that provide salary packaging benefits to their employees. The businesses would like to include e-scooters and e-skateboards to the list of benefits on offer. The items are to be salary packaged under a novated lease arrangement.

The e-scooter and e-skateboard are powered by a light lithium-based battery through an electronic speed controller. No registration or driver's licence is required to ride an e-scooter or e-skateboard.

Under the Lease Agreement and Deed of Novation

The employee enters into a lease agreement with the Employer and the leasing company (the Lease Agreement), who provide either an e-scooter or and e-skateboard to the employee for their personal and business use.

A Deed of Novation is entered into between the employee, the Leasing company and the employer, which transfers the liability for the lease payment from the employer to the employee, for the term of the lease agreement.

The Employer leases the e-scooter or and e-skateboard to the employee for the term of the agreement.

The costs incidental to the instructions for the preparation, execution and stamping of the lease and all stamp duties payable in respect of the lease are borne and paid by the employee.

The employee agrees to pay the employer the amount specified in the agreement for the lease payments.

The Employer may terminate the agreement at any time should any changes in any legislation impose financial or other obligations that are unacceptable to the Employer

All risk of loss of the e-scooter or and e-skateboard or damage to it shall be borne by the employee.

The employee shall obtain full comprehensive insurance cover against loss or damage to the e-scooter or and e-skateboard or alternatively, the employer can obtain full comprehensive insurance cover on the employee's behalf.

Service and maintenance costs for the e-scooter or and e-skateboard are included in the lease payments

The employer may charge the employee for any costs associated with damages caused by careless, reckless or unlawful behaviour by the employee, or improper use of the e-scooter or and e-skateboard. The employee remains responsible for these costs.

The employer has agreements with third parties for the provision of insurance, roadside assistance, services and maintenance, and skills training as part of the lease

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 7(1)

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 Subsection 47(6)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Class Ruling CR 2020/12: Apex Salary Packaging Pty Ltd - use of an electric bicycle (e-bike) by an employee

Reasons for decision

Issues

Question 1

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a car benefit for the purposes of subsection 7(1) of the FBTAA?

Answer

No, providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, does not constitute a car benefit for the purposes of subsection 7(1) of the FBTAA.

Question 2

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a property benefit for the purposes of section 40 of the FBTAA?

No, providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, does not constitute a property benefit for the purposes of section 40 of the FBTAA.

Question 3

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a residual benefit for the purposes of section 45 of the FBTAA?

Answer

Yes, providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitutes a residual benefit for the purposes of section 45 of the FBTAA.

Question 4

If providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitutes a residual benefit, is this an exempt residual benefit for the purposes of subsection 47(6) of the FBTAA?

Answer

No, providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, does not constitute an exempt residual benefit for the purposes of subsection 47(6) of the FBTA

Summary

E-scooters and e-skateboards are excluded from being a car, by the definition in subsection 995-1 of the ITAA 1997. It is considered that they are not cars because they are not motor-powered road vehicles. As neither e-scooters nor e-skateboards are cars, the provision of these items under the novated lease arrangement cannot constitute a car benefit.

A property benefit does not arise in relation to providing employees with either an e-scooter or and e-skateboard under a novated lease arrangement. The employee is provided with the use of the items however, under the novated lease, the ownership of the items is not transferred to the employee.

Providing employees with either an e-scooter or and e-skateboard under the novated lease arrangement constitutes a residual benefit. E-scooters and e-skateboards are not motor vehicles and therefore, the provision of either of these items cannot be an exempt residual benefit. Accordingly, a residual fringe benefit would arise in respect of e-scooters and e-skateboards provided under a novated lease arrangement.

Detailed reasoning

The Applicant provides salary packaging administration for businesses that provide salary packaging benefits to their employees. The businesses would like to include e-scooters and e-skateboards to the list of benefits on offer. The items will be provided under a novated lease agreement; and will be subject to Queensland road rules. The e-scooters and e-skateboards that will be provided are powered by a light lithium-based battery through an electronic speed controller. No registration or driver's licence is required to ride an e-scooter or e-skateboard.

In Queensland, e-scooters and e-skateboards are categorised as wheeled recreational devices (WRDs). These are items that are generally propelled by human power and are used for recreation or play. They include rollerblades, roller skates, skateboards, foot scooters, and motorised/electric foot scooters. If the device is being used by a child who is under 12 years old, it is called a wheeled toy.[1]

Question 1

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a car benefit for the purposes of subsection 7(1) of the FBTAA?

Under subsection 7(1) a car benefit will arise where:

1.    an employee (or associate) is provided with a car

2.    the car is held by the provider (such as an employer), and

3.    the car is either:

-       applied to a private use by the employee (or an associate of the employee), or is

-       taken to be available for the private use of the employee) or an associate of the employee).

For this provision to apply the vehicle must be a car.

The definition of 'car' in subsection 136(1) provides that the term has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) which is 'a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers'.

The term 'motorcycle' is not defined in the FBTAA or the ITAA 1997. It therefore takes on its ordinary meaning 'a motor vehicle resembling a bicycle, for one or two riders, sometimes with a sidecar attached.

Motor vehicle' is defined in subsection 995-1(1) of the ITAA 1997 to mean 'any motor-powered road vehicle (including a 4-wheel drive vehicle)'.

It is noted that in the case of an e-bike it has previously been determined that an e-bike is a bicycle powered by a motor. On this basis an e-bike is considered to be a motorcycle. As a motorcycle an e-bike is excluded from being a car under the definition in subsection 995-1(1).

Are e-scooters and e-skateboards motorcycles?

The Macquarie Dictionary[2] contains the following descriptions:

•         Bicycle: a vehicle with two wheels, one in front of the other, and having a saddle-like seat for the rider. It is steered by handlebars and driven by pedals.

•         Skateboard: a short plank on roller skate wheels, ridden, usually standing up, as a recreation.

•         Scooter: a child's vehicle with two wheels, one in front of the other, and a tread between them, and sometimes with an additional back wheel ensuring stability, steered by a handlebar and propelled by pushing against the ground with one foot.

E-bikes, e-scooters and e-skateboards are bicycles, scooters and skateboards powered by batteries, respectively. Whilst there are similarities between e-bikes, e-scooters and e-skateboards for example they all have wheels and are powered by batteries; from the general description of a scooter and a skateboard, these devices can clearly be differentiated from bicycles. E-scooters and e-skateboards are therefore, not considered to be motorcycles and are not excluded from the from being a car under the definition in subsection 995-1(1) for that reason.

Are e-scooters and e-skateboards motor vehicles?

As noted above, a motor vehicle is defined in subsection 995-1(1) of the ITAA 1997 as "any motor-powered road vehicle (including a 4-wheel drive vehicle)".

The FBTAA, provides no further guidance or context in relation to what a motor vehicle includes, other than in relation to the definition of a 'car', which refers to a motor vehicle, except a motorcycle or similar vehicle, which would indicate a motorcycle or similar is a motor vehicle.

It is relevant to note that up until 2006, 'motor vehicle' was defined in the subsection 136(1) of the FBTAA as:

a motor vehicle (including a vehicle known as a four-wheel drive vehicle) being:

a motor car, station wagon, panel van, utility truck or similar vehicle;

a motorcycle or similar vehicle, or

any other road vehicle."

This was amended[3] to remove the definition from the FBTAA and refer to the definition in the ITAA 97. The purpose was to 'rationalise definitions' to bring greater consistency in the tax laws and make it easier for taxpayers to meet their obligations.

There is no specific reference to these definitions in the explanatory memorandum nor second reading speech, other than to rationalise, therefore it can be suggested there was no intention to amend the meaning of the definition, indicating the definition should still include motorcycles and similar vehicles.

If we look to the definition of motor vehicle the requirements are that the vehicle in question be 'motor powered' and a 'road vehicle'. Neither of these terms are defined in the FBTAA and must take their ordinary meaning.

'Road Vehicle'

Neither the Macquarie Dictionary, 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales nor The Australian Concise Oxford Dictionary, 1997, 3rd edn, Oxford University Press, South Melbourne define the term 'road vehicle'.

However, in Sales Tax Ruling SST 13, the Commissioner considered the meaning of 'road vehicle' for the purposes of the sales tax legislation. Paragraph 3.2 of SST 13 states:

The term 'road vehicle' refers to the class of vehicle, not to the actual use to which a particular vehicle may be put. It is a road vehicle if it is in a class of vehicle that is designed for use on public roads and it would be a road vehicle even though it may never be used or registered for use on public roads.

'Road Vehicle' can be seen to mean a vehicle whose principal design or purpose is to travel on a road.

For example, in ATOID 2007/120, the Commissioner took the view that a grader is not a road vehicle for the purposes of the definition of 'motor vehicle' in subsection 41-25(1) of the Fuel Tax Act 2006.[4] The grader is a vehicle that was designed to cut, move and spread material. The grader is used to undertake road construction and maintenance work. In considering the nature of road vehicles in the Fact Sheet GST and motor vehicles (NAT 4629), the Commissioner considered that a vehicle was not a road vehicle if the main function of the vehicle was not related to public road use and the vehicle's ability to travel on a public road is secondary to its main function.

It is considered that both e-scooters and e-skateboards are designed to transport single passengers, primarily as recreational devices. Their main function is not considered to be related to public road use. Whilst it may be possible to travel on a road on one of these devices, this would be secondary to the main function. (This is notwithstanding whether travelling on a road is prohibited under the relevant road rules.)

We would therefore conclude that e-scooters and e-skateboards are not "road vehicles" and therefore they cannot meet the definition of a motor vehicle in subsection 995-1(1) of the ITAA 1997 as they cannot be motor-powered road vehicles. Consequently, e-scooters and e-skateboards are not cars for the purposes of the FBTAA, and the provision of these items under a novated lease cannot constitute a car benefit.

Question 2

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a property benefit for the purposes of section 40 of the FBTAA?

Section 40 provides that a property benefit will arise:

Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) of the FBTAA provides the following definitions which are relevant to property benefits:

'property' means:

(a) intangible property; and

(b) tangible property.

'tangible property' means goods and includes:

(a) animals, including fish; and

(b) gas and electricity.

'intangible property' means:

(a) real property;

(b) a chose in action; and

(c) any other kind of property other than tangible property;

but does not include:

(a) a right arising under a contract of insurance; or

(b) a lease or licence in respect of real property or tangible property.

'property benefit' means a benefit referred to in section 40, but does not include a benefit that is a benefit by virtue of a provision of Subdivision A of Divisions 2 to 10 (inclusive) of Part III.

'property fringe benefit' means a fringe benefit that is a property benefit.

The term 'benefit' is also defined in subsection 136(1) as including 'any right (including any right in relation to, and an interest in, real or personal property), privilege, service or facility....'

In the current case the relevant benefits that will be used by the employees are e-scooters and e-skateboards. These items are tangible property, so potentially a property benefit could arise. However, a property benefit only arises where a person ("provider") provides property to a recipient. Under the definition in subsection 136(1) the e-scooters and e-skateboards will be provided if the provider disposes of their beneficial or legal ownership of the property.

In the current case, the use of the e-scooter or e-skateboard is to be provided to the employee under a novated lease agreement. As per the terms of the lease, the leasing company retains ownership of the e-scooter or e-skateboard and does not dispose of their beneficial or legal ownership. Therefore, a property benefit will not arise from providing an employee with the use of an e-scooter or an e-skateboard.

Question 3

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitute a residual benefit for the purposes of section 45 of the FBTAA?

Section 45 provides that a benefit will be a residual benefit '... if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive)'.

Subsection 136(1) defines 'benefit' to include:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The right to use an e-scooter or an e-skateboard comes within this definition. As it is not a benefit covered by a provision of Subdivision A of Divisions 2 to 11 it will be a residual benefit.

Confirmation that a residual benefit will arise from an employee's use of an e-scooter or e-skateboard pursuant to section 45 comes from Taxation Ruling TR 1999/15 Income tax and fringe benefits tax: taxation consequences of certain motor vehicle lease novation arrangements. Paragraph 21 of TR 1999/15 provides that '[i]n partial novations a residual benefit may arise under the FBTAA where all that occurs is the transfer to the employer of the lease payment obligations of the employee'.

36. Paragraph 4 of TR 1999/15 defines a partial novation as:

... an industry expression that describes a novation (transfer) of a finance lease payment obligation. A partial novation may also occur where there exists both a finance lease and a sub-lease.

Under the arrangement considered in this ruling, the employer is responsible for the lease payments which gives the employee the legal right to use the e-scooter or e-skateboard. A residual benefit therefore does arise from the employee's use of the e-scooter or e-skateboard pursuant to section 45.

Question 4

Does providing an employee with the use of an e-scooter or an e-skateboard, under a novated lease agreement, constitutes a residual benefit, is this an exempt residual benefit for the purposes of subsection 47(6) of the FBTAA?

Subsection 47(6) provides that where:

(a)   a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) the motor vehicle is not:

(i) a vehicle used for taxitravel (other than a limousine) let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

the benefitis an exempt benefit in relation to the year of tax.

To qualify for the exemption in subsection 47(6) the residual benefit that is provided must be motor vehicle. In this case, the residual benefit that arises from an employee's use of an e-scooter or e-skateboard will not be an exempt benefit under subsection 47(6) as neither an e-scooter nor an e-skateboard are considered to be a motor vehicle as per the definition in 995-1(1) of the ITAA 1997.

[1] If the device is being used by a child who is under 12 years old, it is called a wheeled toy.

[2] www.macquariedictionary.com.au.

[3] By the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006.

[4] Which mirrors the definition of motor vehicle in section 995-1 of the ITAA 1997.