Looming tax challenges for the EV sector in Australia's Parliaments and Courts

Government proposes changes to FBT rules and luxury car import tariffs

The Treasury Laws Amendment (Electric Car Discount) Bill 2022 was introduced on 26 July 2022. The explanatory memorandum summarises that it would amend 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 by or made available for private use of employees.

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.

As explained in a joint media release from Treasurer Jim Chalmers and Minister for Climate Change and Energy Chris Bowen issued the following day, that threshold is $84,916 for 2022-23 for relevant vehicles first made available for use on or after 1 July 2022. That media release also flagged forthcoming "changes to remove the five per cent import tariff for eligible electric cars, as well as the extremely overdue development of Australia’s first national Electric Vehicle Strategy."

The media release came hot on the heels of the first National Electric Vehicle Summit, hosted by the Electric Vehicle and Smart Energy Councils, the Australia Institute and EV solutions provider Boundless, which was held in Canberra on 19 August 2022 (see Wheels magazine's snapshot of the key points).

In another joint media release, this time from Minister Bowen and Minister for Infrastructure Catherine King, the Government announced on 19 August 2022 that a discussion paper on a National Electric Vehicle Strategy would be released "shortly" for wide consultation. They said: "At the heart of the Strategy will be a plan to improve uptake of electric vehicles and improve affordability and choice by growing the Australian electric vehicle market."

Critiques say changes are premature or don't go far enough

While welcomed by some in the EV sector, the potential effectiveness of these proposals has also been questioned. On 28 August 2022, the Senate referred the provisions of the bill to the Senate Economics Legislation Committee for inquiry and report.

The Committee reported on 6 September 2022 (earlier than the original due date of 21 September 2022). While the Committee majority recommended the Bill be passed, dissenting opinions or additional comments arose along party lines:

• Coalition members felt making the suggested changes now would produce only marginal benefits for EV take-up, and that it failed to adequately take into account the lifecycle carbon footprint of vehicle manufacture and operation.
• The Greens considered that personal electric vehicle charging infrastructure should also be eligible for FBT exemptions.

The volume of new initiatives being announced and their complex inter-relationship at the policy level is also producing some (at times perverse) complexity. Two notable examples are the following:

• In their dissenting opinion, Coalition senators commented that the Bill's changes should be considered as part of the development of the Strategy, and that approval of the Bill before the completion of its development would be premature.
• On the same day the Bill was introduced, the Greens (as we anticipated) revived a private members Bill from the previous Parliament (the Electric Vehicles Accountability Act 2021, first introduced on 16 June 2021) which would require:
  • the Energy Minister to table an annual electric vehicle strategy covering matters including government support for:
    • the manufacturing of EVs, batteries and components in Australia;
    • fast charging network infrastructure investment;
    • zero emissions fuels (including clean hydrogen); and
    • consumers purchasing EVs encouragement of rapid EV up-take; and
  • the Productivity Commission to report annually on Australia's support for the manufacture, purchase and use of electric vehicles, batteries and other electric vehicle components, and fast charging network infrastructure investment, and compare to those matters with comparable progress being made in other selected countries.

Interestingly, none of the debate above referred to the legislation in now in force in three States imposing EV or "ZLEV" road user charges. National Party Senators on Committee in their Additional Comments stated:

"EVs are already provided with tax favoured treatment … because they do not pay the fuel excise. Fuel excise helps to pay for roads that all cars (including EV) use. … EV owners are already being provided with a free ride."

This disconnection provides an interesting context for the High Court challenge which — with very little media attention — has been progressing in parallel. Nevertheless, it is probably only a matter of time before the imbalance of State and Commonwealth fiscal interests in fuel excises, registration charges and infrastructure expenditure comes to a head in policy debates.

Status of the High Court challenge in Vanderstock et al v State of Victoria

Since our last update in June 2022, the ACT, NT and Commonwealth Governments have all lodged notices of intervention in the case. This means all Australian Governments are now involved, and the case is set to be the most significant in 25 years on excise duties under section 90 of the Australian Constitution.

At issue is section 7(1) of Victoria's ZLEV Act, which requires the registered operator of a ZLEV to pay a charge for the use of the ZLEV on "specified roads". The question before the High Court is whether section 7(1) is invalid on the basis that it imposes a duty of excise within the meaning of section 90.

Consent orders given by Justice Steward on 28 July 2022 indicate that revised plaintiff, defendant and intervener submissions will not be submitted until 25 November 2022, so a decision this calendar year may be unlikely. However, given no further interventions can now be made, we may be more confident that this timetable will hold firm.

Key issues before the Court

The case turns on the proper construction of section 90. Substantial caselaw already exists on the topic, but several relevant questions remain unresolved, including (based on Victoria's amended defence):

• whether or not a "duty of excise" should be considered as extending to:
  • an inland tax on the consumption and use of goods; or
  • alternatively, a tax which falls only locally-produced goods and which discriminates against those goods in favour of imported goods; and
• depending on the answer to that question, whether the fact that the charge is imposed for use only on "specified roads" (which includes most roads, including inter-State roads) is sufficient to pull the charge outside the scope of an excise duty.

The road user charge in each relevant State leverages an existing registration transaction which is – uncontroversially – a State function. Each State's charge or levy is based on the kilometres travelled by an EV in the preceding registration period, and catches inter-State travel. Given no EV manufacturing currently takes place in Australia, it will be interesting to see if the High Court develops earlier purposive interpretations of section 90, or whether it raises entirely new issues.

Potential implications

These are potentially significant not only for Victoria, but also for NSW, SA (for now, although SA is reversing its position on EV charging) and as announced by WA, where equivalent legislation would impose a charge in the same way using equivalent concepts and definitions (although the operative legal provisions are not identically drafted, and they may not come into force until 2027). Each of these States has directly linked funding raised through EV user charges to investment on EV-related infrastructure and general road maintenance. Disallowance of this new revenue source may affect plans for the roll-out of EVSEs and other EV infrastructure.

Further, it may result in further pressure being brought by State and Territory Governments for reconsideration of how Federal funding flows to States. It is notable that the last major round of intergovernmental arrangements for tax revenue allocation were entered into in the late 1990s, in the lead up to the introduction of the GST, following the last significant excise duty cases, Ha v NSW and Capital Duplicators v ACT (No. 2).