The Clean Car Discount scheme was introduced to make it more affordable to buy low CO2 emission vehicles. From 1 July 2021 until 31 December 2021, a rebate will be paid (on application) to the first registered person of an eligible vehicle (or to a lessor where the first registered person of the vehicle is a lessee). If proposed legislative changes become law, from 1 January 2022 the Clean Car Discount will be based on a vehicle’s CO2 emissions. Vehicles with zero or low emissions will qualify for a rebate and those with high emissions will incur a fee.
Inland Revenue has published guidance on how income tax, GST and FBT apply to amounts people pay or receive under the scheme. People in business need to be aware of the tax consequences if they:
- receive a rebate or pay a fee under the Clean Car Discount scheme, or
- lease a vehicle that comes under the Clean Car Discount scheme.
Income tax is not payable on the rebate under the Clean Car Discount scheme. One of the following will apply:
- the rebate will be excluded income under the rules relating to government grants (if depreciation deductions are claimed on the motor vehicle), or
- will be a capital receipt.
A fee payable under the Clean Car Discount scheme is a capital expense. Because it is a capital expense, people will not get a deduction for the amount of the fee.
If the vehicle is used in a business or leased to a lessee under an operating lease, one of the following will apply to the base cost of the motor vehicle:
- it will be reduced by the amount of any rebate under the rules relating to government grants, or
- will be increased by the amount of any fee.
Under existing rules, if the vehicle is leased to a lessee under a finance lease, depreciation deductions are not able to be claimed. The base cost of the motor vehicle for the lessee will be determined under the financial arrangements rules in the usual way.
Fringe benefit tax (FBT)
If the vehicle is made available to an employee for their private use, FBT must be paid based on the cost of the car to the employer (or to the owner if the car is leased).
The cost will be either:
- reduced by the amount of any rebate, if proposed legislative changes become law, with effect from 1 July 2021, or
- increased by the amount of the fee.
Goods and services tax (GST)
If people are GST-registered and get a rebate under the Clean Car Discount scheme for a vehicle they use in their taxable activity, the rebate will be treated as consideration for a deemed supply by them under the rules relating to government grants (unless they are a public authority). This means that they must return GST in their next GST return.
Contact our office if you have any questions about the Clean Car Discount scheme and related tax implications.