Product Ruling PR 2024/14
Date of effect: 1 July 2024

What this ruling is about: 1. This Ruling sets out the fringe benefits tax and income tax consequences for entities that execute a Subscription Agreement offered by Carly Car Subscription Pty Ltd (Carly) pursuant to which a Vehicle is subscribed for from a Fleet Owner. 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Subscriber Terms and Conditions and the Fleet Owner Agreement referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address: 4. Subject to paragraph 3 and subparagraph 9(b) of this Ruling, this Ruling addresses the tax consequences associated with 4 different scenarios, described at paragraphs 23 to 26 of this Ruling and referred to respectively for the purposes of this Ruling as the: Who this Ruling applies to 5. This Ruling applies to you if you are accepted to participate in the scheme described in paragraphs 11 to 26 of this Ruling on or after 1 July 2024 and on or before 30 June 2027 and are an: 6. This Ruling does not apply to you if you: 7. This Ruling applies from 1 July 2024 to the class of entities specified in paragraph 5 of this Ruling that enter into the scheme from 1 July 2024 until 30 June 2027. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the entity's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 11 to 26 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: Assumptions 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under freedom of information legislation. 12. For the purposes of describing the scheme, and aside from a salary sacrifice agreement to be executed as part of the Salary Sacrifice Scenario, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which an Individual Customer or Business Customer, or any associate of an Individual Customer or Business Customer, will be a party to which are a part of the scheme. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. Overview of scheme 14. Carly offers a car subscription service under which the Subscription Agreement, a tripartite arrangement between Carly, a Subscriber and a Fleet Owner, is entered into. 15. The Subscription Agreement, together with the Subscriber Terms and Conditions, sets out the terms of the agreement between Carly and the Subscriber, as well as the terms of the subscription of the Vehicle by the Fleet Owner to the end user. 16. Depending on which of the 4 scenarios described at paragraphs 23 to 26 of this Ruling applies, under a Subscription Agreement the Subscriber and the end user of the Vehicle, or both, can be any one of the Individual Customer, the Business Customer or the employee of the Business Customer. 17. Pursuant to the terms of the Fleet Owner Agreement between Carly and a Fleet Owner, Carly acts as an agent for the Fleet Owner and facilitates the subscription of the Vehicles by the Fleet Owner. The Fleet Owner maintains ownership of the Vehicle provided during the Subscription Period. Some of Carly's duties (as agent for the Fleet Owner) include: 18. Under the terms of the Subscription Agreement, Subscribers pay an all-inclusive bi-monthly Subscription Fee to Carly covering the use of a Vehicle, insurance, registration and servicing. 19. Under the terms of the Fleet Owner Agreement, Carly remits the Fleet Owner Rate to the Fleet Owner. The Fleet Owner Rate equates to a portion of the Subscription Fee, the excess representing the profit to Carly. 20. Subject to a minimum period of 30 days or (in the case of the Salary Sacrifice Scenario only) 3 months, the Subscription Period under the Subscription Agreement may be a monthly recurring subscription or a fixed-term subscription. The monthly recurring subscription will be renewed every 30 days until cancelled. The fixed-term subscription is for a predetermined, fixed period. 21. As early as 16 days or later from the commencement of the Subscription Period, Subscribers have the option to Switch Vehicles. The term 'Switch' is defined in the Subscriber Terms and Conditions to mean the ability to conduct a single exchange of the Vehicle that is the subject to the current Subscription Agreement with another Vehicle provided by Carly subject to the same terms and conditions. 22. The Switched Vehicle will be subject to a new Subscription Agreement and the Subscription Fee applicable to the Switched Vehicle will apply from the date of the Switch. The subscription end date or recurring subscription date from the original Subscription Agreement will transfer to the new Subscription Agreement. Scenarios 23. Under the Individual Customer Scenario: 24. Under the Business Customer Scenario: 25. Under the Salary Sacrifice Scenario: 26. Under the Reimbursement Scenario: Commissioner of Taxation 4 September 2024 Deductibility of the Subscription Fees and fuel costs 27. Section 8-1 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided that the loss or outgoing is not of a capital, private or domestic nature. 28. Where the Vehicle subscribed for under the Subscription Agreement by the Individual Customer under the Individual Customer Scenario is used by the Individual Customer in gaining or producing their assessable income, the Individual Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in gaining or producing the Individual Customer's assessable income (and not used for private purposes). 29. Where the Vehicle under the Subscription Agreement is subscribed for by an Individual Business Customer, the Individual Business Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in carrying on a business for the purpose of gaining or producing the Individual Business Customer's assessable income (and not used for private purposes). 30. Where the Vehicle is subscribed for under the Subscription Agreement by the Business Customer for provision to its employee under the Business Customer Scenario, the Subscription Fee payments made by the Business Customer to Carly in accordance with its obligations under the Subscription Agreement are outgoings of the Business Customer, as an employer, that are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income (and not outgoings of a private nature). Payments of the Subscription Fee by the Business Customer under the Business Customer Scenario are therefore deductible pursuant to section 8-1. Calculation of car expense deductions  Division 28 31. Division 28 sets out the rules for working out deductions for 'car expenses' in respect of cars that are owned, leased or hired under a hire purchase agreement by an individual or a partnership that includes at least one individual (sections 28-1 and 28-10). 32. Unless an exception under Subdivision 28-J applies, deductions for car expenses can be calculated using one of the 2 methods (section 28-12). 33. For the purposes of Division 28, section 28-13 provides that a car expense is a loss or outgoing to do with a car and includes a loss or outgoing to do with operating a car. The Subscription Fee payable by the Subscriber under the Subscription Agreement is a loss or outgoing to do with a car and fuel costs paid in respect of the Vehicle constitute a loss or outgoing to do with operating a car. 34. Subdivision 28-J sets out the situations where neither of the 2 methods can be used or need to be used. These situations involve either the nature of the car or the way it is used (section 28-160). 35. Certain types of car taken on hire are prohibited by subsection 28-165(1) from using either of the 2 methods of calculating deductions for car expenses. In particular, subsection 28-165(1) applies to subsection 28-165(4), which states: 36. Where either of the 2 methods to calculate deductions for car expenses cannot be used as result of the operation of subsection 28-165(4), the individual (or partnership) must instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income (subsection 28-165(2)). 37. Since the expression 'short-term' is not defined for the purposes of Division 28, it takes its ordinary meaning in the context of subsection 28-165(4). 38. Dictionary meanings of the expression short-term (as well as the words 'short' and 'term' separately) indicate a brief, low in amount, time or period through which something lasts, or to which limits have been set, such that it is limited in scope and having a comparatively short period of time, is contemplated. [5] 39. Further, the imposition of a limitation on the scope of the general expression short-term by the application of the ejusdem generis principle, presupposes the identification of a group of 'like matters'. In the case of subsection 28-165(4), it is considered that a group of like matters has been created in the form of the words 'hourly, daily, weekly' which operate to limit the general expression short-term. Therefore, in considering the expression, 'hourly, daily, weekly or short term basis', short-term must be something of or as the same kind with the words that precede it. 40. Considering these points, the Commissioner is of the view that the expression short-term in subsection 28-165(4) means a period of up to one month. 41. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of one month or less (on a short-term basis), subject to the application of paragraphs 28-165(4)(a) or (b) that Vehicle will be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. The Individual Customer or the Individual Business Customer under these circumstances will have to calculate their deductions for car expenses under the normal principles governing deductions. 42. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of longer than one month (such that it is hired on a longer than short-term basis), that Vehicle will not be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will not apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. 43. Subsection 28-165(4) requires you to ascertain the true nature of the transaction by a consideration of the character of the agreement, so as to determine whether the agreement itself is of a kind ordinarily entered into by people who take cars on hire intermittently, as the occasion requires, on a short-term basis. This is a determination which would be made upon entry into the agreement. 44. Therefore, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis, the option to Switch the Vehicle under that Subscription Agreement does not affect the characterisation of the agreement for the purposes of subsection 28-165(4). Similarly, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within one month of the Subscription Period commencing, the characterisation of the agreement will not be affected. Fringe benefits tax consequences in respect of provision of Vehicle under the Business Customer Scenario and Salary Sacrifice Scenario 45. Subsection 7(1) of the FBTAA provides that where, in respect of the employment of an employee, a car held by a person (referred to as the 'provider'): then the application or availability of the car shall be taken to constitute a benefit provided by the provider to the employee in respect of the employment of the employee. 46. Paragraphs 162(1)(a) and (b) of the FBTAA respectively provide that a car is held by a person when the car is owned by that person or leased to that person. Pursuant to the assumption at subparagraph 10(c) of this Ruling, the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario is a 'person' as defined in subsection 136(1) of the FBTAA. 47. As the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario will be the person to whom the Vehicle is leased, subject to subsection 7(7) of the FBTAA the Business Customer will hold the Vehicle (and be the provider) for the purposes of section 7 of the FBTAA. 48. Pursuant to paragraph 7(7)(b) of the FBTAA, a reference in Division 2 of the FBTAA to 'a car held by a person' does not include a reference to 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. 49. Chapter 7 - Car fringe benefits of Fringe benefits tax - a guide for employers (the Guide) provides that cars hired under an agreement for a period of less than 3 months are, for the purposes of administering subsection 7(7) of the FBTAA, considered to be hired under an agreement of a kind ordinarily entered into by persons taking cars on hire intermittently as occasion requires on a short-term basis, and therefore not 'held' (subject to the exception for cars hired under successive agreements). Chapter 7.3.1 of the Guide sets out: 50. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), unless the Vehicle 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 Vehicle, that Vehicle will be taken to be a car to which subsection 7(7) of the FBTAA applies. The Business Customer under these circumstances will not, for the purposes of section 7 of the FBTAA, be taken to hold the Vehicle and its provision to the Business Customer's employee will not constitute a car benefit provided by the Business Customer. 51. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), and the Vehicle has not been and may not reasonably be expected to be on hire under successive agreements of a kind that result in substantial continuity of the hiring of the Vehicle, the provision of the Vehicle to the Business Customer's employee will constitute a residual benefit under section 45 of the FBTAA (as provided for in the Guide). 52. Paragraphs 50 and 51 of this Ruling are not applicable to a Vehicle subscribed for by the Business Customer under the Salary Sacrifice Scenario (as a consequence of the novation of the Subscription Agreement) as a Vehicle under the Salary Sacrifice Scenario cannot have a Subscription Period of less than 3 months. 53. Where the Vehicle under the Subscription Agreement is either subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of 3 months or longer or subscribed for by the Business Customer under the Salary Sacrifice Scenario (such that it is hired on a longer than short term-basis), that Vehicle will not be taken to be a car to which subsection 7(7) of the FBTAA applies. Therefore, where the Vehicle subscribed for by the Business Customer under these circumstances is applied to a private use by the employee or (pursuant to subsection 7(2) of the FBTAA) is taken to be available for the private use of the employee, the application or availability of the Vehicle will constitute a car benefit provided by the Business Customer to the employee in respect of the employee's employment pursuant to subsection 7(1) of the FBTAA. 54. As noted at paragraph 44 of this Ruling in the context of subsection 28-165(4), where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis for the purposes of subsection 7(7) of the FBTAA, the option to Switch the Vehicle under that Subscription Agreement will not affect the characterisation of the agreement. Similarly, where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within 3 months of the Subscription Period commencing, the characterisation of the agreement for the purposes of subsection 7(7) of the FBTAA will not be affected. Exempt car benefits 55. A car benefit will be an exempt benefit in relation to a year of tax pursuant to subsection 8A(1) of the FBTAA where: Calculating the taxable value of car fringe benefits 56. Where the provision of the Vehicle to the employee under the Business Customer Scenario and the Salary Sacrifice Scenario constitutes a car fringe benefit, defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is a car benefit, the taxable value of that car fringe benefit will be calculated by the Business Customer using the statutory formula method in section 9 of the FBTAA, unless the Business Customer elects to use the operating cost method in section 10 of the FBTAA. [7] 57. The statutory formula method applies a statutory rate to the base value of a car. Where the car is subscribed for by the provider, as is the case in respect of the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario, the base value of the Vehicle subscribed for under the Subscription Agreement is determined under paragraph 9(2)(a) of the FBTAA by reference to the 'leased car value' of the Vehicle and any non-business accessories added after the Fleet Owner purchased the Vehicle. 58. Where the Subscription Period under the Subscription Agreement commenced at or about the time the Fleet Owner purchased the Vehicle, the leased car value will be the cost price of the Vehicle to the Fleet Owner (inclusive of GST and any luxury car tax), and where the Fleet Owner purchased the Vehicle at some other time, the leased car value will be the market value of the Vehicle at the time the Subscription Period under the Subscription Agreement commenced (that is, the amount a person could reasonably be expected to have paid to purchase the Vehicle under an arm's length transaction). 59. The taxable value of a car fringe benefit calculated under the operating cost method is a percentage (representing the extent of the business use percentage applicable to the car) of the total costs of operating the car during the year. The operating costs of the Vehicle determined under paragraph 10(3)(a) of the FBTAA in respect of both the Business Customer Scenario and the Salary Sacrifice Scenario will include the Subscription Fees paid by the Business Customer to Carly and any fuel costs paid for by the Business Customer. Fringe benefits tax consequences under the Reimbursement Scenario 60. Expense payment benefit is defined in subsection 136(1) of the FBTAA by reference to a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit is a payment made by a person (the provider) in discharge of the whole or part of an obligation of another person (the recipient) to pay a third person in respect of an amount of expenditure incurred by the recipient, or the reimbursement by the provider of the recipient in whole or part in respect of an amount of expenditure incurred by the recipient. 61. The reimbursement of the employee (the recipient for the purposes of section 20 of the FBTAA) by the Business Customer (the provider for the purposes of section 20 of the FBTAA) for the Subscription Fees paid by the employee to Carly under the Reimbursement Scenario will constitute an expense payment benefit under section 20 of the FBTAA. 62. The requirements under section 7 of the FBTAA in relation to car benefits are not satisfied under the Reimbursement Scenario. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Class of entities or scheme: 14. Carly offers a car subscription service under which the Subscription Agreement, a tripartite arrangement between Carly, a Subscriber and a Fleet Owner, is entered into. 15. The Subscription Agreement, together with the Subscriber Terms and Conditions, sets out the terms of the agreement between Carly and the Subscriber, as well as the terms of the subscription of the Vehicle by the Fleet Owner to the end user. 16. Depending on which of the 4 scenarios described at paragraphs 23 to 26 of this Ruling applies, under a Subscription Agreement the Subscriber and the end user of the Vehicle, or both, can be any one of the Individual Customer, the Business Customer or the employee of the Business Customer. 17. Pursuant to the terms of the Fleet Owner Agreement between Carly and a Fleet Owner, Carly acts as an agent for the Fleet Owner and facilitates the subscription of the Vehicles by the Fleet Owner. The Fleet Owner maintains ownership of the Vehicle provided during the Subscription Period. Some of Carly's duties (as agent for the Fleet Owner) include: 18. Under the terms of the Subscription Agreement, Subscribers pay an all-inclusive bi-monthly Subscription Fee to Carly covering the use of a Vehicle, insurance, registration and servicing. 19. Under the terms of the Fleet Owner Agreement, Carly remits the Fleet Owner Rate to the Fleet Owner. The Fleet Owner Rate equates to a portion of the Subscription Fee, the excess representing the profit to Carly. 20. Subject to a minimum period of 30 days or (in the case of the Salary Sacrifice Scenario only) 3 months, the Subscription Period under the Subscription Agreement may be a monthly recurring subscription or a fixed-term subscription. The monthly recurring subscription will be renewed every 30 days until cancelled. The fixed-term subscription is for a predetermined, fixed period. 21. As early as 16 days or later from the commencement of the Subscription Period, Subscribers have the option to Switch Vehicles. The term 'Switch' is defined in the Subscriber Terms and Conditions to mean the ability to conduct a single exchange of the Vehicle that is the subject to the current Subscription Agreement with another Vehicle provided by Carly subject to the same terms and conditions. 22. The Switched Vehicle will be subject to a new Subscription Agreement and the Subscription Fee applicable to the Switched Vehicle will apply from the date of the Switch. The subscription end date or recurring subscription date from the original Subscription Agreement will transfer to the new Subscription Agreement. | Scenarios: 23. Under the Individual Customer Scenario: 24. Under the Business Customer Scenario: 25. Under the Salary Sacrifice Scenario: 26. Under the Reimbursement Scenario: Commissioner of Taxation 4 September 2024 | Deductibility of the Subscription Fees and fuel costs: 27. Section 8-1 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided that the loss or outgoing is not of a capital, private or domestic nature. 28. Where the Vehicle subscribed for under the Subscription Agreement by the Individual Customer under the Individual Customer Scenario is used by the Individual Customer in gaining or producing their assessable income, the Individual Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in gaining or producing the Individual Customer's assessable income (and not used for private purposes). 29. Where the Vehicle under the Subscription Agreement is subscribed for by an Individual Business Customer, the Individual Business Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in carrying on a business for the purpose of gaining or producing the Individual Business Customer's assessable income (and not used for private purposes). 30. Where the Vehicle is subscribed for under the Subscription Agreement by the Business Customer for provision to its employee under the Business Customer Scenario, the Subscription Fee payments made by the Business Customer to Carly in accordance with its obligations under the Subscription Agreement are outgoings of the Business Customer, as an employer, that are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income (and not outgoings of a private nature). Payments of the Subscription Fee by the Business Customer under the Business Customer Scenario are therefore deductible pursuant to section 8-1. | Calculation of car expense deductions  Division 28: 31. Division 28 sets out the rules for working out deductions for 'car expenses' in respect of cars that are owned, leased or hired under a hire purchase agreement by an individual or a partnership that includes at least one individual (sections 28-1 and 28-10). 32. Unless an exception under Subdivision 28-J applies, deductions for car expenses can be calculated using one of the 2 methods (section 28-12). 33. For the purposes of Division 28, section 28-13 provides that a car expense is a loss or outgoing to do with a car and includes a loss or outgoing to do with operating a car. The Subscription Fee payable by the Subscriber under the Subscription Agreement is a loss or outgoing to do with a car and fuel costs paid in respect of the Vehicle constitute a loss or outgoing to do with operating a car. 34. Subdivision 28-J sets out the situations where neither of the 2 methods can be used or need to be used. These situations involve either the nature of the car or the way it is used (section 28-160). 35. Certain types of car taken on hire are prohibited by subsection 28-165(1) from using either of the 2 methods of calculating deductions for car expenses. In particular, subsection 28-165(1) applies to subsection 28-165(4), which states: 36. Where either of the 2 methods to calculate deductions for car expenses cannot be used as result of the operation of subsection 28-165(4), the individual (or partnership) must instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income (subsection 28-165(2)). 37. Since the expression 'short-term' is not defined for the purposes of Division 28, it takes its ordinary meaning in the context of subsection 28-165(4). 38. Dictionary meanings of the expression short-term (as well as the words 'short' and 'term' separately) indicate a brief, low in amount, time or period through which something lasts, or to which limits have been set, such that it is limited in scope and having a comparatively short period of time, is contemplated. [5] 39. Further, the imposition of a limitation on the scope of the general expression short-term by the application of the ejusdem generis principle, presupposes the identification of a group of 'like matters'. In the case of subsection 28-165(4), it is considered that a group of like matters has been created in the form of the words 'hourly, daily, weekly' which operate to limit the general expression short-term. Therefore, in considering the expression, 'hourly, daily, weekly or short term basis', short-term must be something of or as the same kind with the words that precede it. 40. Considering these points, the Commissioner is of the view that the expression short-term in subsection 28-165(4) means a period of up to one month. 41. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of one month or less (on a short-term basis), subject to the application of paragraphs 28-165(4)(a) or (b) that Vehicle will be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. The Individual Customer or the Individual Business Customer under these circumstances will have to calculate their deductions for car expenses under the normal principles governing deductions. 42. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of longer than one month (such that it is hired on a longer than short-term basis), that Vehicle will not be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will not apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. 43. Subsection 28-165(4) requires you to ascertain the true nature of the transaction by a consideration of the character of the agreement, so as to determine whether the agreement itself is of a kind ordinarily entered into by people who take cars on hire intermittently, as the occasion requires, on a short-term basis. This is a determination which would be made upon entry into the agreement. 44. Therefore, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis, the option to Switch the Vehicle under that Subscription Agreement does not affect the characterisation of the agreement for the purposes of subsection 28-165(4). Similarly, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within one month of the Subscription Period commencing, the characterisation of the agreement will not be affected. | Fringe benefits tax consequences in respect of provision of Vehicle under the Business Customer Scenario and Salary Sacrifice Scenario: 45. Subsection 7(1) of the FBTAA provides that where, in respect of the employment of an employee, a car held by a person (referred to as the 'provider'): then the application or availability of the car shall be taken to constitute a benefit provided by the provider to the employee in respect of the employment of the employee. 46. Paragraphs 162(1)(a) and (b) of the FBTAA respectively provide that a car is held by a person when the car is owned by that person or leased to that person. Pursuant to the assumption at subparagraph 10(c) of this Ruling, the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario is a 'person' as defined in subsection 136(1) of the FBTAA. 47. As the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario will be the person to whom the Vehicle is leased, subject to subsection 7(7) of the FBTAA the Business Customer will hold the Vehicle (and be the provider) for the purposes of section 7 of the FBTAA. 48. Pursuant to paragraph 7(7)(b) of the FBTAA, a reference in Division 2 of the FBTAA to 'a car held by a person' does not include a reference to 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. 49. Chapter 7 - Car fringe benefits of Fringe benefits tax - a guide for employers (the Guide) provides that cars hired under an agreement for a period of less than 3 months are, for the purposes of administering subsection 7(7) of the FBTAA, considered to be hired under an agreement of a kind ordinarily entered into by persons taking cars on hire intermittently as occasion requires on a short-term basis, and therefore not 'held' (subject to the exception for cars hired under successive agreements). Chapter 7.3.1 of the Guide sets out: 50. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), unless the Vehicle 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 Vehicle, that Vehicle will be taken to be a car to which subsection 7(7) of the FBTAA applies. The Business Customer under these circumstances will not, for the purposes of section 7 of the FBTAA, be taken to hold the Vehicle and its provision to the Business Customer's employee will not constitute a car benefit provided by the Business Customer. 51. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), and the Vehicle has not been and may not reasonably be expected to be on hire under successive agreements of a kind that result in substantial continuity of the hiring of the Vehicle, the provision of the Vehicle to the Business Customer's employee will constitute a residual benefit under section 45 of the FBTAA (as provided for in the Guide). 52. Paragraphs 50 and 51 of this Ruling are not applicable to a Vehicle subscribed for by the Business Customer under the Salary Sacrifice Scenario (as a consequence of the novation of the Subscription Agreement) as a Vehicle under the Salary Sacrifice Scenario cannot have a Subscription Period of less than 3 months. 53. Where the Vehicle under the Subscription Agreement is either subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of 3 months or longer or subscribed for by the Business Customer under the Salary Sacrifice Scenario (such that it is hired on a longer than short term-basis), that Vehicle will not be taken to be a car to which subsection 7(7) of the FBTAA applies. Therefore, where the Vehicle subscribed for by the Business Customer under these circumstances is applied to a private use by the employee or (pursuant to subsection 7(2) of the FBTAA) is taken to be available for the private use of the employee, the application or availability of the Vehicle will constitute a car benefit provided by the Business Customer to the employee in respect of the employee's employment pursuant to subsection 7(1) of the FBTAA. 54. As noted at paragraph 44 of this Ruling in the context of subsection 28-165(4), where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis for the purposes of subsection 7(7) of the FBTAA, the option to Switch the Vehicle under that Subscription Agreement will not affect the characterisation of the agreement. Similarly, where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within 3 months of the Subscription Period commencing, the characterisation of the agreement for the purposes of subsection 7(7) of the FBTAA will not be affected. | Exempt car benefits: 55. A car benefit will be an exempt benefit in relation to a year of tax pursuant to subsection 8A(1) of the FBTAA where: | Calculating the taxable value of car fringe benefits: 56. Where the provision of the Vehicle to the employee under the Business Customer Scenario and the Salary Sacrifice Scenario constitutes a car fringe benefit, defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is a car benefit, the taxable value of that car fringe benefit will be calculated by the Business Customer using the statutory formula method in section 9 of the FBTAA, unless the Business Customer elects to use the operating cost method in section 10 of the FBTAA. [7] 57. The statutory formula method applies a statutory rate to the base value of a car. Where the car is subscribed for by the provider, as is the case in respect of the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario, the base value of the Vehicle subscribed for under the Subscription Agreement is determined under paragraph 9(2)(a) of the FBTAA by reference to the 'leased car value' of the Vehicle and any non-business accessories added after the Fleet Owner purchased the Vehicle. 58. Where the Subscription Period under the Subscription Agreement commenced at or about the time the Fleet Owner purchased the Vehicle, the leased car value will be the cost price of the Vehicle to the Fleet Owner (inclusive of GST and any luxury car tax), and where the Fleet Owner purchased the Vehicle at some other time, the leased car value will be the market value of the Vehicle at the time the Subscription Period under the Subscription Agreement commenced (that is, the amount a person could reasonably be expected to have paid to purchase the Vehicle under an arm's length transaction). 59. The taxable value of a car fringe benefit calculated under the operating cost method is a percentage (representing the extent of the business use percentage applicable to the car) of the total costs of operating the car during the year. The operating costs of the Vehicle determined under paragraph 10(3)(a) of the FBTAA in respect of both the Business Customer Scenario and the Salary Sacrifice Scenario will include the Subscription Fees paid by the Business Customer to Carly and any fuel costs paid for by the Business Customer. | Fringe benefits tax consequences under the Reimbursement Scenario: 60. Expense payment benefit is defined in subsection 136(1) of the FBTAA by reference to a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit is a payment made by a person (the provider) in discharge of the whole or part of an obligation of another person (the recipient) to pay a third person in respect of an amount of expenditure incurred by the recipient, or the reimbursement by the provider of the recipient in whole or part in respect of an amount of expenditure incurred by the recipient. 61. The reimbursement of the employee (the recipient for the purposes of section 20 of the FBTAA) by the Business Customer (the provider for the purposes of section 20 of the FBTAA) for the Subscription Fees paid by the employee to Carly under the Reimbursement Scenario will constitute an expense payment benefit under section 20 of the FBTAA. 62. The requirements under section 7 of the FBTAA in relation to car benefits are not satisfied under the Reimbursement Scenario. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Ruling: 1. This Ruling sets out the fringe benefits tax and income tax consequences for entities that execute a Subscription Agreement offered by Carly Car Subscription Pty Ltd (Carly) pursuant to which a Vehicle is subscribed for from a Fleet Owner. 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Terms which are defined in the Subscriber Terms and Conditions and the Fleet Owner Agreement referred to in paragraph 11 of this Ruling have been capitalised. 3. This Ruling does not address: 4. Subject to paragraph 3 and subparagraph 9(b) of this Ruling, this Ruling addresses the tax consequences associated with 4 different scenarios, described at paragraphs 23 to 26 of this Ruling and referred to respectively for the purposes of this Ruling as the: | Who this Ruling applies to: 5. This Ruling applies to you if you are accepted to participate in the scheme described in paragraphs 11 to 26 of this Ruling on or after 1 July 2024 and on or before 30 June 2027 and are an: 6. This Ruling does not apply to you if you: 7. This Ruling applies from 1 July 2024 to the class of entities specified in paragraph 5 of this Ruling that enter into the scheme from 1 July 2024 until 30 June 2027. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the entity's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 11 to 26 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: | Assumptions: 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under freedom of information legislation. 12. For the purposes of describing the scheme, and aside from a salary sacrifice agreement to be executed as part of the Salary Sacrifice Scenario, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which an Individual Customer or Business Customer, or any associate of an Individual Customer or Business Customer, will be a party to which are a part of the scheme. 13. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview of scheme: 14. Carly offers a car subscription service under which the Subscription Agreement, a tripartite arrangement between Carly, a Subscriber and a Fleet Owner, is entered into. 15. The Subscription Agreement, together with the Subscriber Terms and Conditions, sets out the terms of the agreement between Carly and the Subscriber, as well as the terms of the subscription of the Vehicle by the Fleet Owner to the end user. 16. Depending on which of the 4 scenarios described at paragraphs 23 to 26 of this Ruling applies, under a Subscription Agreement the Subscriber and the end user of the Vehicle, or both, can be any one of the Individual Customer, the Business Customer or the employee of the Business Customer. 17. Pursuant to the terms of the Fleet Owner Agreement between Carly and a Fleet Owner, Carly acts as an agent for the Fleet Owner and facilitates the subscription of the Vehicles by the Fleet Owner. The Fleet Owner maintains ownership of the Vehicle provided during the Subscription Period. Some of Carly's duties (as agent for the Fleet Owner) include: 18. Under the terms of the Subscription Agreement, Subscribers pay an all-inclusive bi-monthly Subscription Fee to Carly covering the use of a Vehicle, insurance, registration and servicing. 19. Under the terms of the Fleet Owner Agreement, Carly remits the Fleet Owner Rate to the Fleet Owner. The Fleet Owner Rate equates to a portion of the Subscription Fee, the excess representing the profit to Carly. 20. Subject to a minimum period of 30 days or (in the case of the Salary Sacrifice Scenario only) 3 months, the Subscription Period under the Subscription Agreement may be a monthly recurring subscription or a fixed-term subscription. The monthly recurring subscription will be renewed every 30 days until cancelled. The fixed-term subscription is for a predetermined, fixed period. 21. As early as 16 days or later from the commencement of the Subscription Period, Subscribers have the option to Switch Vehicles. The term 'Switch' is defined in the Subscriber Terms and Conditions to mean the ability to conduct a single exchange of the Vehicle that is the subject to the current Subscription Agreement with another Vehicle provided by Carly subject to the same terms and conditions. 22. The Switched Vehicle will be subject to a new Subscription Agreement and the Subscription Fee applicable to the Switched Vehicle will apply from the date of the Switch. The subscription end date or recurring subscription date from the original Subscription Agreement will transfer to the new Subscription Agreement. | Scenarios: 23. Under the Individual Customer Scenario: 24. Under the Business Customer Scenario: 25. Under the Salary Sacrifice Scenario: 26. Under the Reimbursement Scenario: Commissioner of Taxation 4 September 2024 | Deductibility of the Subscription Fees and fuel costs: 27. Section 8-1 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided that the loss or outgoing is not of a capital, private or domestic nature. 28. Where the Vehicle subscribed for under the Subscription Agreement by the Individual Customer under the Individual Customer Scenario is used by the Individual Customer in gaining or producing their assessable income, the Individual Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in gaining or producing the Individual Customer's assessable income (and not used for private purposes). 29. Where the Vehicle under the Subscription Agreement is subscribed for by an Individual Business Customer, the Individual Business Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in carrying on a business for the purpose of gaining or producing the Individual Business Customer's assessable income (and not used for private purposes). 30. Where the Vehicle is subscribed for under the Subscription Agreement by the Business Customer for provision to its employee under the Business Customer Scenario, the Subscription Fee payments made by the Business Customer to Carly in accordance with its obligations under the Subscription Agreement are outgoings of the Business Customer, as an employer, that are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income (and not outgoings of a private nature). Payments of the Subscription Fee by the Business Customer under the Business Customer Scenario are therefore deductible pursuant to section 8-1. | Calculation of car expense deductions  Division 28: 31. Division 28 sets out the rules for working out deductions for 'car expenses' in respect of cars that are owned, leased or hired under a hire purchase agreement by an individual or a partnership that includes at least one individual (sections 28-1 and 28-10). 32. Unless an exception under Subdivision 28-J applies, deductions for car expenses can be calculated using one of the 2 methods (section 28-12). 33. For the purposes of Division 28, section 28-13 provides that a car expense is a loss or outgoing to do with a car and includes a loss or outgoing to do with operating a car. The Subscription Fee payable by the Subscriber under the Subscription Agreement is a loss or outgoing to do with a car and fuel costs paid in respect of the Vehicle constitute a loss or outgoing to do with operating a car. 34. Subdivision 28-J sets out the situations where neither of the 2 methods can be used or need to be used. These situations involve either the nature of the car or the way it is used (section 28-160). 35. Certain types of car taken on hire are prohibited by subsection 28-165(1) from using either of the 2 methods of calculating deductions for car expenses. In particular, subsection 28-165(1) applies to subsection 28-165(4), which states: 36. Where either of the 2 methods to calculate deductions for car expenses cannot be used as result of the operation of subsection 28-165(4), the individual (or partnership) must instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income (subsection 28-165(2)). 37. Since the expression 'short-term' is not defined for the purposes of Division 28, it takes its ordinary meaning in the context of subsection 28-165(4). 38. Dictionary meanings of the expression short-term (as well as the words 'short' and 'term' separately) indicate a brief, low in amount, time or period through which something lasts, or to which limits have been set, such that it is limited in scope and having a comparatively short period of time, is contemplated. [5] 39. Further, the imposition of a limitation on the scope of the general expression short-term by the application of the ejusdem generis principle, presupposes the identification of a group of 'like matters'. In the case of subsection 28-165(4), it is considered that a group of like matters has been created in the form of the words 'hourly, daily, weekly' which operate to limit the general expression short-term. Therefore, in considering the expression, 'hourly, daily, weekly or short term basis', short-term must be something of or as the same kind with the words that precede it. 40. Considering these points, the Commissioner is of the view that the expression short-term in subsection 28-165(4) means a period of up to one month. 41. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of one month or less (on a short-term basis), subject to the application of paragraphs 28-165(4)(a) or (b) that Vehicle will be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. The Individual Customer or the Individual Business Customer under these circumstances will have to calculate their deductions for car expenses under the normal principles governing deductions. 42. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of longer than one month (such that it is hired on a longer than short-term basis), that Vehicle will not be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will not apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. 43. Subsection 28-165(4) requires you to ascertain the true nature of the transaction by a consideration of the character of the agreement, so as to determine whether the agreement itself is of a kind ordinarily entered into by people who take cars on hire intermittently, as the occasion requires, on a short-term basis. This is a determination which would be made upon entry into the agreement. 44. Therefore, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis, the option to Switch the Vehicle under that Subscription Agreement does not affect the characterisation of the agreement for the purposes of subsection 28-165(4). Similarly, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within one month of the Subscription Period commencing, the characterisation of the agreement will not be affected. | Fringe benefits tax consequences in respect of provision of Vehicle under the Business Customer Scenario and Salary Sacrifice Scenario: 45. Subsection 7(1) of the FBTAA provides that where, in respect of the employment of an employee, a car held by a person (referred to as the 'provider'): then the application or availability of the car shall be taken to constitute a benefit provided by the provider to the employee in respect of the employment of the employee. 46. Paragraphs 162(1)(a) and (b) of the FBTAA respectively provide that a car is held by a person when the car is owned by that person or leased to that person. Pursuant to the assumption at subparagraph 10(c) of this Ruling, the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario is a 'person' as defined in subsection 136(1) of the FBTAA. 47. As the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario will be the person to whom the Vehicle is leased, subject to subsection 7(7) of the FBTAA the Business Customer will hold the Vehicle (and be the provider) for the purposes of section 7 of the FBTAA. 48. Pursuant to paragraph 7(7)(b) of the FBTAA, a reference in Division 2 of the FBTAA to 'a car held by a person' does not include a reference to 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. 49. Chapter 7 - Car fringe benefits of Fringe benefits tax - a guide for employers (the Guide) provides that cars hired under an agreement for a period of less than 3 months are, for the purposes of administering subsection 7(7) of the FBTAA, considered to be hired under an agreement of a kind ordinarily entered into by persons taking cars on hire intermittently as occasion requires on a short-term basis, and therefore not 'held' (subject to the exception for cars hired under successive agreements). Chapter 7.3.1 of the Guide sets out: 50. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), unless the Vehicle 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 Vehicle, that Vehicle will be taken to be a car to which subsection 7(7) of the FBTAA applies. The Business Customer under these circumstances will not, for the purposes of section 7 of the FBTAA, be taken to hold the Vehicle and its provision to the Business Customer's employee will not constitute a car benefit provided by the Business Customer. 51. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), and the Vehicle has not been and may not reasonably be expected to be on hire under successive agreements of a kind that result in substantial continuity of the hiring of the Vehicle, the provision of the Vehicle to the Business Customer's employee will constitute a residual benefit under section 45 of the FBTAA (as provided for in the Guide). 52. Paragraphs 50 and 51 of this Ruling are not applicable to a Vehicle subscribed for by the Business Customer under the Salary Sacrifice Scenario (as a consequence of the novation of the Subscription Agreement) as a Vehicle under the Salary Sacrifice Scenario cannot have a Subscription Period of less than 3 months. 53. Where the Vehicle under the Subscription Agreement is either subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of 3 months or longer or subscribed for by the Business Customer under the Salary Sacrifice Scenario (such that it is hired on a longer than short term-basis), that Vehicle will not be taken to be a car to which subsection 7(7) of the FBTAA applies. Therefore, where the Vehicle subscribed for by the Business Customer under these circumstances is applied to a private use by the employee or (pursuant to subsection 7(2) of the FBTAA) is taken to be available for the private use of the employee, the application or availability of the Vehicle will constitute a car benefit provided by the Business Customer to the employee in respect of the employee's employment pursuant to subsection 7(1) of the FBTAA. 54. As noted at paragraph 44 of this Ruling in the context of subsection 28-165(4), where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis for the purposes of subsection 7(7) of the FBTAA, the option to Switch the Vehicle under that Subscription Agreement will not affect the characterisation of the agreement. Similarly, where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within 3 months of the Subscription Period commencing, the characterisation of the agreement for the purposes of subsection 7(7) of the FBTAA will not be affected. | Exempt car benefits: 55. A car benefit will be an exempt benefit in relation to a year of tax pursuant to subsection 8A(1) of the FBTAA where: | Calculating the taxable value of car fringe benefits: 56. Where the provision of the Vehicle to the employee under the Business Customer Scenario and the Salary Sacrifice Scenario constitutes a car fringe benefit, defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is a car benefit, the taxable value of that car fringe benefit will be calculated by the Business Customer using the statutory formula method in section 9 of the FBTAA, unless the Business Customer elects to use the operating cost method in section 10 of the FBTAA. [7] 57. The statutory formula method applies a statutory rate to the base value of a car. Where the car is subscribed for by the provider, as is the case in respect of the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario, the base value of the Vehicle subscribed for under the Subscription Agreement is determined under paragraph 9(2)(a) of the FBTAA by reference to the 'leased car value' of the Vehicle and any non-business accessories added after the Fleet Owner purchased the Vehicle. 58. Where the Subscription Period under the Subscription Agreement commenced at or about the time the Fleet Owner purchased the Vehicle, the leased car value will be the cost price of the Vehicle to the Fleet Owner (inclusive of GST and any luxury car tax), and where the Fleet Owner purchased the Vehicle at some other time, the leased car value will be the market value of the Vehicle at the time the Subscription Period under the Subscription Agreement commenced (that is, the amount a person could reasonably be expected to have paid to purchase the Vehicle under an arm's length transaction). 59. The taxable value of a car fringe benefit calculated under the operating cost method is a percentage (representing the extent of the business use percentage applicable to the car) of the total costs of operating the car during the year. The operating costs of the Vehicle determined under paragraph 10(3)(a) of the FBTAA in respect of both the Business Customer Scenario and the Salary Sacrifice Scenario will include the Subscription Fees paid by the Business Customer to Carly and any fuel costs paid for by the Business Customer. | Fringe benefits tax consequences under the Reimbursement Scenario: 60. Expense payment benefit is defined in subsection 136(1) of the FBTAA by reference to a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit is a payment made by a person (the provider) in discharge of the whole or part of an obligation of another person (the recipient) to pay a third person in respect of an amount of expenditure incurred by the recipient, or the reimbursement by the provider of the recipient in whole or part in respect of an amount of expenditure incurred by the recipient. 61. The reimbursement of the employee (the recipient for the purposes of section 20 of the FBTAA) by the Business Customer (the provider for the purposes of section 20 of the FBTAA) for the Subscription Fees paid by the employee to Carly under the Reimbursement Scenario will constitute an expense payment benefit under section 20 of the FBTAA. 62. The requirements under section 7 of the FBTAA in relation to car benefits are not satisfied under the Reimbursement Scenario. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


Appendix: Deductibility of the Subscription Fees and fuel costs: 27. Section 8-1 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing assessable income or it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided that the loss or outgoing is not of a capital, private or domestic nature. 28. Where the Vehicle subscribed for under the Subscription Agreement by the Individual Customer under the Individual Customer Scenario is used by the Individual Customer in gaining or producing their assessable income, the Individual Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in gaining or producing the Individual Customer's assessable income (and not used for private purposes). 29. Where the Vehicle under the Subscription Agreement is subscribed for by an Individual Business Customer, the Individual Business Customer will be entitled to a deduction under section 8-1 for payments of the Subscription Fee to Carly, and fuel costs incurred in relation to the Vehicle, to the extent that the Vehicle is used in carrying on a business for the purpose of gaining or producing the Individual Business Customer's assessable income (and not used for private purposes). 30. Where the Vehicle is subscribed for under the Subscription Agreement by the Business Customer for provision to its employee under the Business Customer Scenario, the Subscription Fee payments made by the Business Customer to Carly in accordance with its obligations under the Subscription Agreement are outgoings of the Business Customer, as an employer, that are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income (and not outgoings of a private nature). Payments of the Subscription Fee by the Business Customer under the Business Customer Scenario are therefore deductible pursuant to section 8-1. | Calculation of car expense deductions  Division 28: 31. Division 28 sets out the rules for working out deductions for 'car expenses' in respect of cars that are owned, leased or hired under a hire purchase agreement by an individual or a partnership that includes at least one individual (sections 28-1 and 28-10). 32. Unless an exception under Subdivision 28-J applies, deductions for car expenses can be calculated using one of the 2 methods (section 28-12). 33. For the purposes of Division 28, section 28-13 provides that a car expense is a loss or outgoing to do with a car and includes a loss or outgoing to do with operating a car. The Subscription Fee payable by the Subscriber under the Subscription Agreement is a loss or outgoing to do with a car and fuel costs paid in respect of the Vehicle constitute a loss or outgoing to do with operating a car. 34. Subdivision 28-J sets out the situations where neither of the 2 methods can be used or need to be used. These situations involve either the nature of the car or the way it is used (section 28-160). 35. Certain types of car taken on hire are prohibited by subsection 28-165(1) from using either of the 2 methods of calculating deductions for car expenses. In particular, subsection 28-165(1) applies to subsection 28-165(4), which states: 36. Where either of the 2 methods to calculate deductions for car expenses cannot be used as result of the operation of subsection 28-165(4), the individual (or partnership) must instead calculate the deductions under the normal principles governing deductions, including the rules for apportioning a loss or outgoing that is only partly attributable to producing assessable income (subsection 28-165(2)). 37. Since the expression 'short-term' is not defined for the purposes of Division 28, it takes its ordinary meaning in the context of subsection 28-165(4). 38. Dictionary meanings of the expression short-term (as well as the words 'short' and 'term' separately) indicate a brief, low in amount, time or period through which something lasts, or to which limits have been set, such that it is limited in scope and having a comparatively short period of time, is contemplated. [5] 39. Further, the imposition of a limitation on the scope of the general expression short-term by the application of the ejusdem generis principle, presupposes the identification of a group of 'like matters'. In the case of subsection 28-165(4), it is considered that a group of like matters has been created in the form of the words 'hourly, daily, weekly' which operate to limit the general expression short-term. Therefore, in considering the expression, 'hourly, daily, weekly or short term basis', short-term must be something of or as the same kind with the words that precede it. 40. Considering these points, the Commissioner is of the view that the expression short-term in subsection 28-165(4) means a period of up to one month. 41. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of one month or less (on a short-term basis), subject to the application of paragraphs 28-165(4)(a) or (b) that Vehicle will be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. The Individual Customer or the Individual Business Customer under these circumstances will have to calculate their deductions for car expenses under the normal principles governing deductions. 42. Where the Vehicle under the Subscription Agreement is subscribed for by the Individual Customer or the Individual Business Customer for a Subscription Period of longer than one month (such that it is hired on a longer than short-term basis), that Vehicle will not be taken to be a car to which subsection 28-165(4) applies and subsection 28-165(1) will not apply to prohibit the use of the 2 methods to calculate their deductions for car expenses. 43. Subsection 28-165(4) requires you to ascertain the true nature of the transaction by a consideration of the character of the agreement, so as to determine whether the agreement itself is of a kind ordinarily entered into by people who take cars on hire intermittently, as the occasion requires, on a short-term basis. This is a determination which would be made upon entry into the agreement. 44. Therefore, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis, the option to Switch the Vehicle under that Subscription Agreement does not affect the characterisation of the agreement for the purposes of subsection 28-165(4). Similarly, where the Individual Customer or the Individual Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within one month of the Subscription Period commencing, the characterisation of the agreement will not be affected. | Fringe benefits tax consequences in respect of provision of Vehicle under the Business Customer Scenario and Salary Sacrifice Scenario: 45. Subsection 7(1) of the FBTAA provides that where, in respect of the employment of an employee, a car held by a person (referred to as the 'provider'): then the application or availability of the car shall be taken to constitute a benefit provided by the provider to the employee in respect of the employment of the employee. 46. Paragraphs 162(1)(a) and (b) of the FBTAA respectively provide that a car is held by a person when the car is owned by that person or leased to that person. Pursuant to the assumption at subparagraph 10(c) of this Ruling, the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario is a 'person' as defined in subsection 136(1) of the FBTAA. 47. As the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario will be the person to whom the Vehicle is leased, subject to subsection 7(7) of the FBTAA the Business Customer will hold the Vehicle (and be the provider) for the purposes of section 7 of the FBTAA. 48. Pursuant to paragraph 7(7)(b) of the FBTAA, a reference in Division 2 of the FBTAA to 'a car held by a person' does not include a reference to 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. 49. Chapter 7 - Car fringe benefits of Fringe benefits tax - a guide for employers (the Guide) provides that cars hired under an agreement for a period of less than 3 months are, for the purposes of administering subsection 7(7) of the FBTAA, considered to be hired under an agreement of a kind ordinarily entered into by persons taking cars on hire intermittently as occasion requires on a short-term basis, and therefore not 'held' (subject to the exception for cars hired under successive agreements). Chapter 7.3.1 of the Guide sets out: 50. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), unless the Vehicle 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 Vehicle, that Vehicle will be taken to be a car to which subsection 7(7) of the FBTAA applies. The Business Customer under these circumstances will not, for the purposes of section 7 of the FBTAA, be taken to hold the Vehicle and its provision to the Business Customer's employee will not constitute a car benefit provided by the Business Customer. 51. Where the Vehicle under the Subscription Agreement is subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of less than 3 months (on a short-term basis), and the Vehicle has not been and may not reasonably be expected to be on hire under successive agreements of a kind that result in substantial continuity of the hiring of the Vehicle, the provision of the Vehicle to the Business Customer's employee will constitute a residual benefit under section 45 of the FBTAA (as provided for in the Guide). 52. Paragraphs 50 and 51 of this Ruling are not applicable to a Vehicle subscribed for by the Business Customer under the Salary Sacrifice Scenario (as a consequence of the novation of the Subscription Agreement) as a Vehicle under the Salary Sacrifice Scenario cannot have a Subscription Period of less than 3 months. 53. Where the Vehicle under the Subscription Agreement is either subscribed for by the Business Customer under the Business Customer Scenario for a Subscription Period of 3 months or longer or subscribed for by the Business Customer under the Salary Sacrifice Scenario (such that it is hired on a longer than short term-basis), that Vehicle will not be taken to be a car to which subsection 7(7) of the FBTAA applies. Therefore, where the Vehicle subscribed for by the Business Customer under these circumstances is applied to a private use by the employee or (pursuant to subsection 7(2) of the FBTAA) is taken to be available for the private use of the employee, the application or availability of the Vehicle will constitute a car benefit provided by the Business Customer to the employee in respect of the employee's employment pursuant to subsection 7(1) of the FBTAA. 54. As noted at paragraph 44 of this Ruling in the context of subsection 28-165(4), where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis for the purposes of subsection 7(7) of the FBTAA, the option to Switch the Vehicle under that Subscription Agreement will not affect the characterisation of the agreement. Similarly, where the Business Customer enters into a Subscription Agreement with Carly for a Subscription Period that is longer than a short-term basis but Switches the Vehicle within 3 months of the Subscription Period commencing, the characterisation of the agreement for the purposes of subsection 7(7) of the FBTAA will not be affected. | Exempt car benefits: 55. A car benefit will be an exempt benefit in relation to a year of tax pursuant to subsection 8A(1) of the FBTAA where: | Calculating the taxable value of car fringe benefits: 56. Where the provision of the Vehicle to the employee under the Business Customer Scenario and the Salary Sacrifice Scenario constitutes a car fringe benefit, defined in subsection 136(1) of the FBTAA to mean a fringe benefit that is a car benefit, the taxable value of that car fringe benefit will be calculated by the Business Customer using the statutory formula method in section 9 of the FBTAA, unless the Business Customer elects to use the operating cost method in section 10 of the FBTAA. [7] 57. The statutory formula method applies a statutory rate to the base value of a car. Where the car is subscribed for by the provider, as is the case in respect of the Business Customer under the Business Customer Scenario and the Salary Sacrifice Scenario, the base value of the Vehicle subscribed for under the Subscription Agreement is determined under paragraph 9(2)(a) of the FBTAA by reference to the 'leased car value' of the Vehicle and any non-business accessories added after the Fleet Owner purchased the Vehicle. 58. Where the Subscription Period under the Subscription Agreement commenced at or about the time the Fleet Owner purchased the Vehicle, the leased car value will be the cost price of the Vehicle to the Fleet Owner (inclusive of GST and any luxury car tax), and where the Fleet Owner purchased the Vehicle at some other time, the leased car value will be the market value of the Vehicle at the time the Subscription Period under the Subscription Agreement commenced (that is, the amount a person could reasonably be expected to have paid to purchase the Vehicle under an arm's length transaction). 59. The taxable value of a car fringe benefit calculated under the operating cost method is a percentage (representing the extent of the business use percentage applicable to the car) of the total costs of operating the car during the year. The operating costs of the Vehicle determined under paragraph 10(3)(a) of the FBTAA in respect of both the Business Customer Scenario and the Salary Sacrifice Scenario will include the Subscription Fees paid by the Business Customer to Carly and any fuel costs paid for by the Business Customer. | Fringe benefits tax consequences under the Reimbursement Scenario: 60. Expense payment benefit is defined in subsection 136(1) of the FBTAA by reference to a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that an expense payment benefit is a payment made by a person (the provider) in discharge of the whole or part of an obligation of another person (the recipient) to pay a third person in respect of an amount of expenditure incurred by the recipient, or the reimbursement by the provider of the recipient in whole or part in respect of an amount of expenditure incurred by the recipient. 61. The reimbursement of the employee (the recipient for the purposes of section 20 of the FBTAA) by the Business Customer (the provider for the purposes of section 20 of the FBTAA) for the Subscription Fees paid by the employee to Carly under the Reimbursement Scenario will constitute an expense payment benefit under section 20 of the FBTAA. 62. The requirements under section 7 of the FBTAA in relation to car benefits are not satisfied under the Reimbursement Scenario. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | This Ruling has been given on the basis that the entity who applied for the Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Ruling. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information. | A car is held on a short-term basis where this is no 'substantial continuity' to the hire arrangement. | If you provide a hire car or taxi for a total period of less than 3 months for your employee to use, it will not be a car benefit but it may still be a residual fringe benefit.


Legislative references: FBTAA 1986 Div 2 FBTAA 1986 7 FBTAA 1986 7(1) FBTAA 1986 7(2) FBTAA 1986 7(3) FBTAA 1986 7(7) FBTAA 1986 7(7)(b) FBTAA 1986 8(2) FBTAA 1986 8A FBTAA 1986 8A(1) FBTAA 1986 8A(2) FBTAA 1986 8A(3) FBTAA 1986 8A(4) FBTAA 1986 8A(5) FBTAA 1986 9 FBTAA 1986 9(2)(a) FBTAA 1986 10 FBTAA 1986 10(3)(a) FBTAA 1986 20 FBTAA 1986 45 FBTAA 1986 53 FBTAA 1986 67 FBTAA 1986 135P(3) FBTAA 1986 136(1) FBTAA 1986 162(1)(a) FBTAA 1986 162(1)(b) ITAA 1936 Pt IVA ITAA 1997 8-1 ITAA 1997 Div 28 ITAA 1997 28-1 ITAA 1997 28-10 ITAA 1997 28-12 ITAA 1997 28-13 ITAA 1997 Subdiv 28-C ITAA 1997 Subdiv 28-F ITAA 1997 Subdiv 28-J ITAA 1997 28-160 ITAA 1997 28-165(1) ITAA 1997 28-165(2) ITAA 1997 28-165(4) ITAA 1997 28-165(4)(a) ITAA 1997 28-165(4)(b) ITAA 1997 28-170 ITAA 1997 28-175 ITAA 1997 28-180 ITAA 1997 28-185 ITAA 1997 Div 40 ITAA 1997 Div 230 ITAA 1997 Div 242 ITAA 1997 995-1(1) Treasury Laws Amendment (Electric Car Discount) Act 2022 7
Other references: Fringe benefits tax - a guide for employers Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au