EVs, car fees and the role of tax in the path to net zero
Tax Alert - July 2021
By Ian Fay and Emma Marr
If you feel like you’ve heard about nothing other than electric vehicles (EVs) and utes recently, you might have to adjust your settings, because the conversation about cutting emissions and decarbonising to move to a net zero emissions target is only just getting started. Tax will be at the heart of the response, driving action by governments, businesses, and individuals.
You will all have a role to play.
The Climate Change Commission have released their advice on climate change in New Zealand to the Government, and their call was clear: Ināia tonu nei: the time is now. Their view is that New Zealand is not on track to meet our legislated emission reduction targets. Our emissions are increasing, and as a country we need to start making transformational changes to our infrastructure, the technology we use, the speed with which we act, and the economic and social changes we are willing to make.
Within days the Government announced a fee and rebate scheme to incentivise greater adoption of low-emission vehicles, which we discuss further below.
What role can tax professionals play?
The Government must prepare an Emissions Reduction Plan by the end of 2021. This will set the emissions budget for 2022-2025. While governments around the world are moving to mandate behaviour to achieve net zero emissions, many people and businesses are already making changes to reduce their emissions and commit to sustainable development. Consumers driven to do so will increasingly demand that the businesses they buy from are making the same effort.
As the fiscal, legal, social and environmental changes impact on business operations, internal and external tax specialists will assist businesses in multiple ways, including:
- Understanding and responding to government use of taxes, grants, and incentives to change behaviour.
- Monitoring tax changes at a local and global level, to identify risks and opportunities.
- Partnering with business in adapting changes to strategy, including increased digitisation and other uses of technology that support emission reduction.
Globally Deloitte is examining the role of tax strategy in supporting the response to climate change, and has published the first article in a series on “Tax and the road to net zero”, exploring why heads of tax need to be involved in their organisation’s journey to ‘net zero’. The accompanying “six questions for tax leaders to consider” prompts an assessment of the way that tax professionals can be ready to respond and contribute to business transformation.
Introducing: the Clean Car Discount and the Clean Car Programme
Businesses will be turning to their tax and finance team to digest the most recent climate-related government announcement. One of the many recommendations of the Climate Change Commission is that nearly all cars imported by 2035 must be EVs. Currently 0.6% of light vehicles in New Zealand are EVs. In response the Government has introduced a rebate for qualifying vehicles from 1 July 2021, and a fee for high-emitting vehicles from 1 January 2022. Both the fee and rebate apply only to new and used imported cars.
The Clean Car Discount will enable purchasers of imported EVs and plug-in hybrid electric vehicles (PHEVs) to receive a rebate if the vehicle:
- cost less than $80,000;
- is a “light vehicle”, which means a car, SUV, ute, van or truck weighing no more than 3.5 tonnes;
- is registered between 1 July and 31 December 2021; and
- has a safety rating of 3 stars or more on the Rightcar website.
The level of rebate depends on the type of vehicle and whether it is new or used (see graphic below) and can be applied for by the vehicle owner once the vehicle is registered. The rebate includes GST, so GST-registered owners will return the GST component to Inland Revenue. There is a fund for rebates, and once it is exhausted no further rebates will be available until the scheme restarts.
The value of the car for fringe benefit tax (FBT) and tax depreciation purposes will be calculated after the fee or discount is applied.
From 1 January 2022 the Clean Car Programme will be rolled out, subject to legislation being passed. Fees and discounts will be set according to C0₂ emission ratings, which measure the grams of carbon dioxide emitted by the vehicle per kilometre travelled. Rebates would end at 146 C0₂ and fees would begin at 192 C0₂. Anything in between would have no rebate or fee. For example, a Mini Countryman plug-in (C0₂/km, 59) would qualify for a rebate, a Toyota Hilux (C0₂/km, 236) would be subject to a fee, and Toyota RAV4 (C0₂/km, 160) would be unaffected. The specific fees and discounts will be set later this year, but they will sit within the limits in the graphic below.
Vehicle dealers will be required to display C0₂ emission ratings on cars for sale and in online advertising from 2022.
FBT and the great New Zealand ute
Since the Clean Programme announcement, a fair amount of media attention has been directed at the popularity of utes. In 2020 three of the top five selling cars in New Zealand were utes. There are no EV or PHEV utes available in New Zealand now or in the near future. Some discussion has been directed at the perceived “tax break” available to utes.
“Work-related vehicles” provided to employees are exempt from FBT where specific criteria are met. The vehicle cannot be a car, must display the employer’s identification, may be available only for very specific and limited private use, and agreements on use must be agreed and monitored. For every day these criteria are met, the vehicle is exempt from FBT.
Inland Revenue has generally accepted a “car” does not include a ute, double-cab or not, because a ute is not designed “exclusively or mainly to carry passengers”. The proliferation of utes at school pick-ups, supermarket carparks, and high streets may suggest that this approach could benefit from closer examination, or at the very least Inland Revenue could use their extensive data-mining capabilities to assess whether the FBT exemption is well understood. If not, the Clean Car Programme may drive some double-cabbers to consider switching to a lower emission vehicle anyway.
July 2021 Tax Alert contents
- EVs, car fees, and the role of tax in the path to net zero
- Alert Level 2 again: What this means
- Property tax consultation launched
- Practical guidance on the purchase price allocation rule
- Volatility in price of Bitcoin raises tax questions
- Tipping point: Business leaders embrace a new role for the tax function.
- Progress towards a multilateral solution in international taxation
- Snapshot of recent developments