Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2022
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (ELECTRIC CAR DISCOUNT) BILL 2022
EXPLANATORY MEMORANDUM
(Circulated by authority of the Treasurer, the Hon Jim Chalmers MP)
Table of Contents
Glossary iii
General outline and financial impact ...................................................... 1
Electric car discount - fringe benefits tax exemption ... 3
Statement of Compatibility with Human Rights ............ 9
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
Bill Treasury Laws Amendment (Electric Car
Discount) Bill 2022
FBT Fringe benefits tax
FBTAA 1986 Fringe Benefits Tax Assessment Act 1986
Treasury Laws Amendment (Electric Car Discount) Bill 2022
General outline and financial impact
Electric car discount - fringe benefits tax
exemption
Outline
The Bill amends the FBTAA 1986 to exempt from fringe benefits tax cars that are zero
or low emissions vehicles held by the provider and used by or made available for
private use of employees. Additionally, to be eligible for the exemption the value of the
car at the first retail sale must be below the luxury car tax threshold for fuel efficient
cars. This is to encourage a greater take up of electric cars by Australian road users to
reduce Australia's carbon emissions from the transport sector, by making electric cars
more affordable. The operation of the amendment will be reviewed after three years in
light of electric car take up.
Date of effect
The Bill applies to fringe benefits provided on or after 1 July 2022 for cars that are
eligible zero or low emissions vehicles that are first held and used on or after
1 July 2022.
Proposal announced
The Bill implements the Electric Car Discount commitment announced by the
Government during the 2022 Federal Election.
Financial impact
This proposal is estimated to have the following financial impact:
All figures in this table represent amounts in $m.
2022-23 2023-24 2024-25 2025-26
-20.0 -40.0 -55.0 -90.0
Human rights implications
This Bill does not raise any human rights issues. See Statement of Compatibility with
Human Rights -- Chapter 2.
Compliance cost impact
The Bill is expected to have no more than a minor regulatory impact.
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Electric car discount -
fringe benefits tax exemption
Outline of chapter
1.1 The Bill amends the FBTAA 1986 to exempt from FBT the use, or availability
for use of cars that are zero or low emissions vehicles made available by
employers to current employees. Additionally, to be eligible for the exemption
the value of the car at the first retail sale must be below the luxury car tax
threshold for fuel efficient cars.
1.2 The objective of these amendments is to encourage a greater take up of electric
cars by Australian road users by making electric cars more affordable, and to
reduce Australia's carbon emissions from the transport sector. These
amendments will be reviewed after three years in light of electric car take up.
1.3 All legislative references in this Chapter are to the FBTAA 1986 unless
otherwise indicated.
Context of amendments
1.4 The Government is supporting the take up of electric cars by increasing the
affordability of those vehicles for Australians. Removing the FBT on eligible
electric cars will increase competition in the market for cars by decreasing the
price differential relative to internal combustion engine cars.
1.5 Increasing the affordability of electric cars plays a role in encouraging a greater
take up of electric vehicles by Australians. An increase in electric cars will
contribute to reducing Australia's carbon emissions from the transport sector.
1.6 This amendment will apply to cars that are:
• battery electric vehicles;
• hydrogen fuel cell electric vehicles; and
• plug-in hybrid electric vehicles.
collectively referred to as zero or low emissions vehicles.
1.7 The FBT exemption relates to car fringe benefits and therefore will only apply
to vehicles that are 'cars' for FBT purposes; other types of electric vehicles are
excluded. Additionally, to be eligible for the exemption the value of the car at
the first retail sale must be below the luxury car tax threshold for fuel efficient
cars.
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Electric car discount - fringe benefits tax exemption
1.8 The Government will review the electric car discount in three years. The
review will consider electric car take up at that time, whether this tax
concessions should be continued, and if so, in what form.
Summary of new law
1.9 The Bill introduces an electric car discount in the form of an FBT exemption.
This allows for car fringe benefits comprising the use or availability for use of
an eligible car that is a zero or low emissions vehicle to be exempt from FBT.
A car benefit is an exempt benefit for a year of tax if:
• the car is a zero or low emissions vehicle;
• the value of the car at the first retail sale was below the luxury car tax
threshold for fuel efficient vehicles; and
• the car is first held and used on or after 1 July 2022.
1.10 Car fringe benefits that are exempt from FBT will continue to be included in
the employee's individual fringe benefits amount for the purposes of
determining the employee's reportable fringe benefits amount for each FBT
year in which the exempt benefit is provided.
Comparison of key features of new law and
current law
Table 1.1 Comparison of new law and current law
New law Current law
Employers are exempt from FBT for car Where an employer provides a fringe benefit
fringe benefits involving cars that are to an employee on a car that is a zero or low
eligible zero or low emissions vehicles emissions vehicle, the employer is subject to
made available to employees. Additionally, FBT on the taxable value of the benefit.
to be eligible for the exemption the value of The taxable value of a car fringe benefit can
the car at the first retail sale must be below be calculated using a statutory formula or on
the luxury car tax threshold for fuel a cost basis.
efficient cars.
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Treasury Laws Amendment (Electric Car Discount) Bill 2022
Detailed explanation of new law
New FBT exemption for car benefits derived from use or availability of
eligible electric cars
1.11 Car fringe benefits arise where a car is applied to, or is taken to be available
for, private use of an employee or an associate of the employee by their
employer.
1.12 A car benefit (described in subsection 7(1)) is an exempt benefit if all of the
following conditions are satisfied:
• the benefit is provided in the course of employment for a current
employee in relation to an FBT year;
• the benefit is provided in relation to a car that is a zero or low
emissions vehicle; and
• no amount of luxury car tax has become payable on the car (generally
this means the value of the electric car, as defined by the
A New Tax System (Luxury Car Tax) Act 1999, does not exceed the
luxury car tax threshold within the meaning of that Act for fuel
efficient vehicles at the time the car was first sold in a retail sale).
[Schedule 1, item 1, subsection 8A(1) of the FBTAA 1986]
1.13 The amendments incentivise the take up of electric vehicles by providing an
exemption from FBT which would otherwise be payable by employers making
available to employees use of cars that are zero or low emissions vehicles.
Where an employer provides a car fringe benefit to an employee, the employer
is subject to FBT on the taxable value of the benefit. These amendments mean
that if an employer makes an eligible electric car available for a current
employee's private use, the car fringe benefit arising from its private use will
not attract FBT. The benefit exempted from FBT for eligible electric cars will
include any associated benefit in running the car for the period the car fringe
benefit was provided.
[Schedule 1, item 2, section 53 of the FBTAA 1986]
1.14 A car in relation to which luxury car tax has become payable within the
meaning of the A New Tax System (Luxury Car Tax) Act 1999 will not be
eligible for the exemption. In practice this means that the first retail price of the
car (and the price for any subsequent supply of the car which might attract
luxury car tax) on or after 1 July 2022 will need to be below the relevant year
luxury car tax threshold for fuel efficient cars. For example, an electric car that
has a luxury car tax value over $84,916 in 2022-23 (current indexed threshold)
will not qualify for the exemption. A retail sale would be a supply or
importation of the car to a customer for a purpose other than a quotable
purpose (within the meaning of the A New Tax System (Luxury Car Tax)
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Electric car discount - fringe benefits tax exemption
Act 1999).
[Schedule 1, item 1, paragraph 8A(1)(c) of the FBTAA 1986]
1.15 This exemption will apply to electric cars that are first held and used on or
after 1 July 2022. The purpose of the policy is to increase the take up of
electric cars, and electric cars in use prior to 1 July 2022 are therefore not
eligible.
1.16 There are two distinct tests for the exemption to apply. One is whether the car
was held by a person being either owned by that person, leased to that person
or otherwise made available to that person by another person. This includes
being held by an employer, an associate of an employer, or another person with
whom an employer or associate has an arrangement relating to the use or
availability of the car. The other is whether the car was used in that the car was
applied to, or is taken to be available for use. The exemption will only apply if
the first time that both of these tests are met is after 1 July 2022. For example,
if Zena acquires an electric car on 1 April 2022 and makes that car available
for the private use of her employee Jack, to provide car fringe benefits from
that date for 4 years, the benefits provided from 1 July 2022 will not be
exempt. Additionally, if Zena were to instead sell the car to another employer
after Jack had used it for only 2 years (i.e. on 1 April 2024) the benefit that that
employer may provide to its employees for the use of the electric car will also
not be exempt.
1.17 Provided the conditions of the exemption are met, an electric car that was
ordered prior to 1 July 2022, but was not delivered until after 1 July 2022
would be eligible for the exemption (even if an employer acquired legal title to
the car before 1 July 2022). This is because the car would not be both held and
used until after 1 July 2022. A second-hand electric car may qualify for the
exemption, provided that the car was first purchased new on or after
1 July 2022.
1.18 The amendments do not alter access to salary packaging arrangements.
Provided the conditions above are satisfied, the exemption is available
notwithstanding that the car fringe benefit is provided under a salary packaging
arrangement between an employer and employee.
Cars that are zero and low emissions vehicles
1.19 An electric car will need to meet specific criteria to attract the exemption. The
new FBT exemption is in relation to the provision of car benefits, therefore an
electric car must satisfy the requirements to be covered by the car fringe
benefits rules including the meaning of a car as set out in section 136 of the
FBTAA 1986. Additionally, the electric car must:
• use one or more electric motors for propulsion; and
• be fuelled by either an off-vehicle electrical power source, a battery, an
electric generator, a hydrogen fuel cell, or a combination of these.
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Treasury Laws Amendment (Electric Car Discount) Bill 2022
[Schedule 1, items 1 and 6, sections 8A and 136 of FBTAA 1986]
1.20 The term zero or low emissions vehicle is used to refer to a car that would be
exempt from FBT if those cars were used to provide a car fringe benefit. The
definition of a zero or low emissions vehicle includes:
• a battery electric vehicle;
• a hydrogen fuel cell electric vehicle; and
• a plug-in hybrid electric vehicle.
[Schedule 1, item 1, subsection 8A(2) of FBTAA 1986]
1.21 A car that has an internal combustion engine will not be within the scope
unless it is able to be fuelled by a battery that can be recharged by an off-
vehicle power source (i.e., plug-in hybrid car).
1.22 Cars that do not fit within the meaning of a zero or low emission vehicles will
not be affected; their treatment for the purpose of FBT will remain the same.
There is no change to the treatment of fringe benefits involving the use of other
electric vehicles that are not cars, such as motorbikes.
Reporting exempt car fringe benefits
1.23 Car fringe benefits for zero or low emissions cars that are exempt from FBT
will be included for the purposes of determining a current employee's
reportable fringe benefits amount for each FBT year. The amendments
effectively add back to the employee's individual fringe benefits amount the
taxable value of the car benefit as if the exemption had not occurred.
[Schedule 1, items 3, 4 and 5, sections 135P and 135Q of FBTAA 1986]
1.24 This is designed to ensure fairness in the tax and transfer systems, noting that
the reportable fringe benefits amount is used to calculate and determine various
liabilities and entitlements. These include calculating the Medicare levy
surcharge, determining entitlement to certain tax offsets, and determining
eligibility for certain family assistance payments.
Consequential amendments
1.25 The Bill also makes a minor consequential amendment to the FBTAA 1986. It
amends subsection 53(1) to ensure that particular benefits provided in relation
to a car that is a zero or low emissions vehicle are exempt (in the same way
that those benefits are exempt in relation to car benefits referred to in
subsection 8(2)). Subsection 53(1) deals with car expense payment benefits,
car property benefits and car residual benefits.
[Schedule 1, item 2, subsection 53(1) of FBTAA 1986]
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Electric car discount - fringe benefits tax exemption
Commencement, application, and transitional
provisions
1.26 The amendments apply to benefits first provided on or after 1 July 2022.
[Schedule 1, item 7]
1.27 The application of the law is retrospective; however, it is wholly beneficial for
affected employers as the affected benefits would no longer be subject to the
tax.
1.28 The amendments provided by the Bill commence from the first 1 January,
1 April, 1 July or 1 October to occur after the day the Bill receives Royal
Assent.
[Section 2]
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Statement of
Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Treasury Laws Amendment (Electric Car Discount) Bill 2022
Overview
2.1 The Bill is compatible with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of the Human
Rights (Parliamentary Scrutiny) Act 2011.
2.2 The Bill amends the Fringe Benefits Tax Assessment Act 1986 to exempt from
fringe benefits tax cars that are zero or low emissions vehicles held by the
provider and used or made available for private use of employees. This is to
encourage a greater take up of electric cars by Australian road users by making
electric cars more affordable, and to reduce Australia's carbon emissions from
the transport sector. The operation of the amendment will be reviewed after
three years in light of electric car take up.
Human rights implications
2.3 This Bill does not engage any of the applicable rights or freedoms.
Conclusion
2.4 This Bill is compatible with human rights as it does not raise any human rights
issues.
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