Private ruling: Fringe benefits tax
Date of advice: 28 June 2024
Published: 12 August 2024
Ruling period: Fringe Benefit Tax (FBT) year ending 31 March 2025 | FBT year ending 31 March 2026 | FBT year ending 31 March 2027 | FBT year ending 31 March 2028
Date scheme commenced: 1 April 2024

Ruling: Q1: Under the Subscription Agreement (SubAgreement) and Novated Lease Agreement (NVLA), does a car benefit arise under section 7 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes. | Q2: Is the car held under the SubAgreement and NVLA, being an electric vehicle (EV), an exempt car benefit under section 8A of the FBTAA? | A2: Yes. | Q3: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, is the base value of the car under the Statutory Formula method, under section 9 of the FBTAA, the car's market value at the start of the Subscription Arrangement? | A3: Yes. | Q4: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, do the operating costs of the car, under section 10 of the FBTAA, include the monthly subscription fees, any upfront establishment fee, any early termination fees and any excess kilometres charges? | A4: Yes. | Q5: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, will the payment of costs, from the Employee's after-tax salary, under the Subscription Arrangement, be considered 'recipient's payments' pursuant to paragraphs 9(2)(e) and 10(3)(c) of the FBTAA? | A5: Yes.

Relevant facts and circumstances: The Company is planning to provide a new service, offering employees and employers to enter into a novated car lease arrangement on a subscription basis for a minimum period of 3 months (the Subscription Arrangement). The Company is proposing to enter into a lease arrangement with third party car fleet companies for various electric vehicles (EVs) that can be offered to employees under a Subscription Arrangement. These leases will allow for the EVs to be subleased to other parties by the Company. The Company may choose to own some of the EVs that will be leased out under the Subscription Arrangement. If an Employee of a participating Employer is interested in the Subscription Arrangement, they will be required to submit an application form. From this a quote will be provided by the Company and if the Employee accepts the quote, a SubAgreement and NVLA (which incorporates a salary sacrifice agreement) will be issued. The SubAgreement sets out the details of the subscription service whereby subscribers (i.e. Employees) receive the use of an EV for the duration of a specified period. The SubAgreement comprises the details (including the subscription period, description of the EV, subscription fees, any initial up front subscription fee, late payment charges etc) and terms and conditions of the agreement. The subscription term starts when the employee has been given possession of the EV (referred to as 'car handover' in the agreements). There will be no option for the employee to purchase the EV at the end of the SubAgreement. The NVLA under this Subscription Arrangement will be essentially the same as a NVLA for an EV leased over a 3-to-5-year period. That is, the Employer will take over the rights and responsibilities of the Employee under the SubAgreement for the period of the subscription. The Employer will then be liable to pay the Subscription Fees (SubFees) until the NVLA ceases to exist. This may be at the end of the subscription period or when an Employee ceases employment, whichever is first. The liability for any remaining SubFees after termination of an Employee's employment reverts back to the employee, who assumes responsibility until the SubAgreement period ceases. A salary sacrifice agreement is contained within the NVLA and sets out that pre-tax salary deductions will be required to cover the main costs of the SubAgreement, and that post-tax salary deductions will be in respect of any fines or road tolls incurred in respect of use of the car. The EV to be provided under the Subscription Arrangement model will fall under the relevant Luxury Car Tax (LCT) threshold at all times. Further, the cars will not be offered on an intermittent, hourly, daily, or weekly basis. The subscription will be for a minimum of 3 months and typically will be for longer months, in keeping with longer-term leasing arrangements. There may be shorter renewal periods, however these will only be permitted after the initial 3-month period. At the end of the subscription term, the Company will communicate with the Employer and the Employee and offer an option to: • cease the subscription and return the EV to the Company • cease the subscription and enter into a new agreement for the EV of their choice; or • extend the subscription period for the current car. The SubFees are to be paid monthly by the Employer and funded from the Employee's pre-tax salary. The Employee agrees to pay the following fees as set out in the SubAgreement: • initial subscription fee • fortnightly subscription fee.

Relevant legislative provisions: A New Tax System (Luxury Car Tax) Act 1999, Section 25-1 | A New Tax System (Luxury Car Tax) Act 1999, Subsection 25-1(4) | Income Tax Assessment Act 1997 , Subsection 995-1(1) | 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 Paragraph 8A(1)(b) | Fringe Benefits Tax Assessment Act 1986 Subsection 8A (2) | Fringe Benefits Tax Assessment Act 1986 Section 9 | Fringe Benefits Tax Assessment Act 1986 Subsection 9 (1) | Fringe Benefits Tax Assessment Act 1986 Subsection 9(2) | Fringe Benefits Tax Assessment Act 1986 Paragraphs 9(2)(e) | Fringe Benefits Tax Assessment Act 1986 Subparagraph 9(2)(e)(i) | Fringe Benefits Tax Assessment Act 1986 Section 10 | Fringe Benefits Tax Assessment Act 1986 Subsection 10 (3) | Fringe Benefits Tax Assessment Act 1986 Paragraph 10(3)(a) | Fringe Benefits Tax Assessment Act 1986 Subsection 135P(3) | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) | Fringe Benefits Tax Assessment Act 1986 Paragraph 162(1)(a) | Fringe Benefits Tax Assessment Act 1986 Paragraph 162(1)(b)

Reasons for decision: Summary: A car benefit will arise under section 7 of the FBTAA. | Detailed Reasoning - 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. Paragraphs 162(1)(a) and (b) of the FBTAA respectively provides that a car is held by a person when the car is owned by that person or leased to that person. The Company is a 'person' for FBT purposes. As the Company will either be the person that owns the EV or the person to whom the EV is leased, the Company will hold the EV (and be the provider) for the purposes of section 7 of the FBTAA. Where the EV under the Subscription Agreement is subscribed for by the Employer and applied to a private use by the Employee, or is taken to be available for the private use of the Employee, the application or availability of the EV under an arrangement between the Company as the provider and the Employer will constitute a car benefit provided by the Company to the Employee in respect of the Employee's employment pursuant to subsection 7(1) of the FBTAA. | Detailed Reasoning - Conclusion: The Company will be providing a car benefit in accordance with subsection 7(1) of the FBTAA to the Employee entering a salary sacrifice arrangement or NVLA. | Detailed Reasoning - Question 2: Is the car held under the SubAgreement and NVLA, being an EV, an exempt car benefit under section 8A of the FBTAA? | Summary: The provision of an EV to the Employee, held under the SubAgreement and NVLA, is an exempt car benefit under section 8A of the FBTAA. | Detailed Reasoning - 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. | Detailed Reasoning - The benefit is a car benefit: As a car benefit will be provided in accordance with subsection 7(1) of the FBTAA to the Employee by entering a salary sacrifice arrangement incorporated into the NVLA, this requirement has been met. | Detailed Reasoning - The vehicle must be a car, which is a zero or low emissions vehicle': A 'car' is defined in subsection 136(1) of the 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, one of the conditions for a car benefit to constitute an exempt benefit in relation to a year of tax is that 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 facts for this ruling provide that the vehicles are EVs with zero or low emissions, which satisfies subsection 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' 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 EVs 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 an 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 Explanatory Memorandum to the Treasury Laws Amendment (Electric Car Discount) Bill 2022 at paragraph 1.17 says: ... A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022. The exemption will only apply if the first time that both tests are met is after 1 July 2022. In these circumstances the EV needs to be both held and used after 1 July 2022. | Detailed Reasoning - '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 an employee's private use where: 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. In this case, the EV will be used or available for private use by the Employee as the EV is being provided under a valid salary sacrifice arrangement and NVLA; the EV is held by a person (the Company), with whom the Employer has an arrangement relating to the use or availability of the EV; the EV is in the Employee's custody and control and the Employee is entitled to apply the car to private use. Therefore, this requirement has been met. | Detailed Reasoning - 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 EV 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 during 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 2023-24 for a fuel-efficient vehicle is $89,332. If the EV in question is less than this amount, there is no LCT requirement. You have informed us that the cost for each EV will always remain under the LCT threshold of $89,332 and that no amount of LCT will become payable on the supply of the car. Therefore, this requirement has been met. | Detailed Reasoning - Conclusion: As all of the requirements in section 8A of the FBTAA have been satisfied, the provision of an EV to the Employee is an exempt car benefit. | Detailed Reasoning - Question 3: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, is the base value of the car under the Statutory Formula method, under section 9 of the FBTAA, the car's market value at the start of the Subscription Arrangement? | Summary: Yes, when calculating the notional taxable value of the EV, the base value of the EV is the cost price of the EV to the Company when they first held the EV. | Detailed Reasoning - Detailed reasoning: Whilst the car benefit provided to the Employee under the circumstances referred to in the facts will be exempt from FBT pursuant to section 8A of the FBTAA, the application of section 8A is disregarded for the purposes of working out the Employee's reportable fringe benefits amount (if any) for a year of income in respect of their employment by the Employer pursuant to subsection 135P(3) of the FBTAA. Section 135P(1) states how to determine if an employee has a reportable fringe benefits amount: An employee has a reportable fringe benefit 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). Therefore, where the provision of the EV to the Employee constitutes a car fringe benefit, defined in subsection 136(1) to mean a fringe benefit that is a car benefit, the taxable value of that car fringe benefit will be calculated by the Employer using the statutory formula method in section 9, unless the Employer elects to use the operating cost method in section 10. Subsection 9(1) of the FBTAA sets out the formula for calculating the taxable value for one or more car fringe benefits for a particular car held by the employer, where the employer uses the statutory formula method. | Detailed Reasoning - 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 × No. of days during that yr of tax on which the car fringe benefits were provided by the provider ÷ No of days in that yr of tax] - Amt (if any) of the recipient's pyt Whether the car is owned or leased is irrelevant, the vehicle merely needs to be held. The base value of the EV subscribed for under the Subscription Agreement is determined under paragraph 9(2)(a) of the FBTAA, which states: (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 (iii) 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 Under the NVLA, 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 NVLA, 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 NVLA, 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. | Detailed Reasoning - Conclusion: The base value of the car for the purposes of calculating the notional taxable value is the cost price of the EV to the Company when they first held the EV whether it is owned or leased. | Detailed Reasoning - Question 4: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, do the operating costs of the car, under section 10 of the FBTAA, include the monthly subscription fees, any upfront establishment fee, any early termination fees and any excess kilometre's charges? | Summary: Yes, these expenses will form part of the operating costs of the EV. | Detailed Reasoning - Detailed reasoning: Section 10 of the FBTAA sets out the methodology for establishing the taxable values of car fringe benefits under the cost basis (operating cost method). The taxable value of car fringe benefits under the operating cost method are principally determined by establishing the percentage of the total operating costs of the car during the FBT year that relates to the extent of actual private use. Paragraph 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. The SubAgreement includes the following costs which are payable under the NVLA: • initial subscription fee • the SubFee, which covers repairs, maintenance, registration, insurance, and lease charges • the additional kilometre charge • late fees • delivery fee • recharge fee. The operating costs of the car under paragraph 10(3)(a) of the FBTAA includes the EV initial subscription fees, the monthly establishment fee, termination fees and any excess kilometre charges as they are charges payable under the lease agreement. | Detailed Reasoning - Conclusion: The operating costs of the car include initial subscription fees, the monthly establishment fee, termination fees and any excess kilometre charges as they are charges payable under the NVLA. | Detailed Reasoning - Question 5: If the answer to Question 1 is 'yes', when calculating the notional taxable value, or reportable value, of the car benefit, will the payment of costs, from the Employee's after-tax salary, under the Subscription Arrangement, be considered 'recipient's payments' pursuant to paragraphs 9(2)(e) and 10(3)(c) of the FBTAA? | Summary: Any Employee contribution made to the Employer for the operating costs of the EV is considered a 'recipient's payment' and will reduce the notional taxable value of the car fringe benefit. It is important to note that the payments must be associated to the operating costs of the EV. | Detailed Reasoning - Detailed reasoning: In most cases, an organisation can reduce their FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. The payment is commonly called an 'employee contribution'. Under subsection 9(1) of the FBTAA the taxable value of car fringe benefits calculated under the statutory formula method can be reduced by the amount of the recipient's payment. Subparagraph 9(2)(e)(i) of the FBTAA then explains that the 'recipient's payment' is the amount of the consideration paid to the employer by the employee in respect of the provision of the car fringe benefits. Likewise, for the operating cost method, paragraph 10(3)(c) of the FBTAA allows for any employee contributions to the employer to be considered to reduce the taxable value of the fringe benefit. Subsection 136(1) of the FBTAA defines a recipient contribution in relation to a fringe benefit as the amount of any consideration paid to the provider or to the employer by the recipient, reduced by any reimbursement paid to the recipient in respect of that consideration. Generally, the payment made by an employee is a cash payment made to the organisation or the person who provides the benefit. Important points to note about employee contributions are: • employee contributions must be paid out of the employee's after-tax income; • an employee contribution towards a particular fringe benefit cannot be used to reduce the taxable value of another fringe benefit; • in certain circumstances, journal entries in the organisation's accounts can be an employee contribution; • an employee contribution paid directly to the organisation (including those received by journal entry) is included in the organisation's assessable income. Under the proposed arrangement, the participating employees will pay out of their post-tax salary for payments of costs incurred when using the EV. As the provision of the EV by the Employer is a car benefit, any payment by the Employee to the Employer in respect of the EV is a recipient contribution. It is important to note that the costs incurred must be costs associated with the operating costs of the EV. Fines and road tolls are not considered costs that form part of the operating costs of the EV. | Detailed Reasoning - Conclusion: Employee contributions made to the Employer for costs associated with the operation of the EV are considered recipient contributions and will reduce the notional taxable value of the car fringe benefit.

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.