Referral of the inquiry
1.1
The Treasury Laws Amendment (Electric Car Discount) Bill 2022 (the bill) was introduced into the House of Representatives and read a first time on
27 July 2022.
1.2
On 28 July 2022, the Senate referred the provisions of the bill to the Senate Economics Legislation Committee (the committee) for inquiry and report by 21 September 2022.
Purpose of the bill
1.3
The bill seeks to amend the Fringe Benefits Tax Assessment Act 1986 (the Act) to provide a Fringe Benefits Tax (FBT) exemption for eligible electric cars that are made available for the private use of an employee or an associate of the employee by their employer.
1.4
The FBT exemption would apply to battery electric cars, hydrogen fuel cell electric cars and plug-in hybrid electric cars (collectively referred to as zero or low emissions vehicles) that are below the luxury car tax threshold for fuel efficient cars. The amendments would mean that the exemption would apply to fringe benefits arising from the use or availability of an eligible electric car from 1 July 2022, provided that the car was first made available for use on or after that date.
1.5
The Explanatory Memorandum (EM) also notes that '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'.
1.6
The key objective of the Electric Car Discount – FBT exemption (the Electric Car Discount) is to incentivise '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'.
1.7
The intent of the bill was explained by the Treasurer, the Hon Dr Jim Chalmers, on 27 July 2022:
…the Electric Car Discount is one of the first new initiatives in the Government’s plan to improve electric vehicle uptake, with further measures to be delivered as part of the National Electric Vehicle Strategy.
1.8
The Treasurer stated that the package aims to reduce transport emissions as part of the Government’s broader climate action agenda.
1.9
Amongst playing a role in encouraging a greater take up of electric cars by Australian road users by increasing their affordability, the proposed bill is expected to:
increase competition in the market for cars by decreasing the price differential relative to internal combustion engine cars, and
contribute to reducing Australia’s carbon emissions from the transport sector.
1.10
The FBT exemption for eligible electric cars would be implemented as an ongoing measure. The government would undertake a review of the Electric Car Discount in three years to consider the take up of electric cars at that time, whether the FBT concession should be continued, and if so, in what form.
Background
1.11
As outlined in the EM and described above, the bill is designed to help reduce the upfront and ownership costs of electric cars, addressing a barrier to buying electric cars in Australia by increasing their affordability. The bill implements the Government’s plan to improve electric vehicle uptake as part of the National Electric Vehicle Strategy.
Provisions of the bill
Overview of the amendments
1.12
The bill has one schedule and amends the Act to provide an exemption from FBT for eligible electric cars (zero or low emissions vehicles). 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.
1.13
The bill sets out two distinct tests for the FBT exemption to apply. The first is whether the car is held by a person, being either owned by that person, leased to that person, or otherwise made available to that person by another person. The second is whether the car is used, in that the car is applied to, or taken to be available for use. The exemption will only apply if the first time that both tests are met is 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 the above date.
1.14
As outlined above, 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 Act. Additionally, the electric car must use one or more electric motors for propulsion and meet the eligibility criteria previously outlined.
1.15
Accordingly, cars that do not fit within the meaning of zero or low emission vehicles will not be affected, including the use of other electric vehicles such as motor bikes.
1.16
The Electric Car Discount package also includes the removal of five per cent tariffs for eligible electric cars with a customs value below the luxury car tax threshold for fuel efficient vehicles. However, this proposed tariff reduction is not part of the bill.
1.17
The amendments do not alter access to salary packaging arrangements.
1.18
A comparison of key features of new law and current law are listed in the table below:
Table 1.1: Summary of amendments
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Employers are exempt from FBT for car fringe benefits involving cars that are eligible zero or low emissions vehicles made available to 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.
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Where an employer provides a fringe benefit to an employee on a car that is a zero or low emissions vehicle, the employer is subject to FBT on the taxable value of the benefit.
The taxable value of a car fringe benefit can be calculated using a statutory formula or on a cost basis.
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Source: Explanatory Memorandum, p. 4.
Consultation
1.19
The EM does not reference any consultation activities in relation to the bill.
Commencement
1.20
The bill commences the day after Royal Assent but the application of the law will be retrospective. The Electric Car Discount 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.
Financial impact
1.21
The EM states that this measure is estimated to have the following financial impact on the underlying cash balance over the forward estimates period:
Table 1.2: Financial impact of measure ($)
Source: Explanatory Memorandum, p. 1.
Legislative scrutiny
1.22
At the time of reporting, the Senate Standing Committee on the Scrutiny of Bills had not raised any concerns with the bill.
Human rights implications
Statement of compatibility with Human Rights
1.23
The Statement of Compatibility with Human Rights in the EM states that the bill is compatible with human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, and thus does not raise any human rights issues.
Regulatory impact
1.24
There is no Regulatory Impact Statement (RIS) for the bill.
Conduct of the inquiry
1.25
The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 17 August 2022.
1.26
The committee received 26 submissions as well as additional information and answers to questions on notice, which are listed at Appendix 1.
1.27
The committee held two public hearings for the inquiry, one in Melbourne on 23 August 2022 and another in Canberra on 25 August 2022. The names of witnesses who appeared at the hearings can be found at Appendix 2.
Acknowledgements
1.28
The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearings.