ATO Interpretative Decision
ATO ID 2004/432 (Withdrawn)
Goods and Services Tax
GST and leasing a car to a disabled person when the car is also under a partial novation arrangementFOI status: may be released
-
This ATO ID is withdrawn as it is superseded by the 'GST and cars purchased by eligible people with disabilities' fact sheet (NAT 4325).This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a lessor of cars, making a GST-free supply under subsection 38-510(1) of the A New Tax System (Goods and Services Tax) 1999 (GST Act), when it leases a car to a disabled person and the leased car is under a partial novation arrangement between the disabled person and their employer?
Decision
Yes, the entity is making a GST-free supply under subsection 38-510(1) of the GST Act when it leases a car to a disabled person and the leased car is under a partial novation arrangement between the disabled person and their employer.
Facts
The entity is a lessor of cars. The entity leases a car to a disabled person.
The disabled person enters into a partial novation arrangement with its employer, whereby the disabled person sub-leases the car to its employer. This partial novation arrangement is separate to the lease arrangement between the entity and the disabled person.
Under the sub-lease arrangement, the disabled person foregoes the right to receive payments under the sub-lease in exchange for the employer's agreement to accept the novation of the lease payment obligations contained in the lease agreement between the entity and the disabled person.
The partial novation arrangement does not revoke the lease between the disabled person and the entity.
The disabled person has a current disability certificate issued in accordance with the requirements set out in paragraph 38-510(1)(a) of the GST Act.
The disabled person intends to use the car for their personal transportation to or from gainful employment during all of the Subdivision 38-P period.
The GST inclusive market value of the car does not exceed the car limit.
The entity is registered for goods and services tax (GST).
Reasons for Decision:
Subsection 38-510(1) of the GST Act provides that the supply of a car to an individual, who has a current disability certificate issued in accordance with the requirements of paragraph 38-510(1)(a) of the GST Act, will be GST-free where the individual intends to use the car in his or her personal transportation to or from gainful employment during all of the Subdivision 38-P period.
The disabled person has a current disability certificate issued in accordance with the requirements set out in paragraph 38-510(1)(a) of the GST Act. In addition, the disabled person intends to use the car for their personal transportation to or from gainful employment during all of the Subdivision 38-P period.
Subsection 38-510(2) of the GST Act provides that a supply covered by subsection 38-510(1) of the GST Act is not GST-free to the extent that the GST inclusive market value of the car exceeds the car limit. The GST inclusive market value of the car does not exceed the car limit. Therefore, as the supply of the car is not excluded from being GST-free under subsection 38-510(2) of the GST Act and the requirements of subsection 38-510(1) of the GST Act are satisfied, the supply of the car is GST-free.
However, it needs to be determined whether the entity, in leasing the car to the disabled person while the car is under a partial novation arrangement, is making a supply of the car to the disabled person.
The disabled person enters into a separate partial novation arrangement with its employer, whereby, the disabled person sub-leases the car to their employer.
Under the sub-lease arrangement, the disabled person foregoes the right to receive payments under the sub-lease in exchange for the employer's agreement to accept the novation of the lease payment obligations contained in the lease agreement between the entity and the disabled person. This arrangement does not revoke the lease agreement between the entity and the disabled person.
The fact that the employer provides the consideration to the entity (that is, makes the lease payments to the entity), does not mean that the entity is making a supply of the car to the employer. Identifying the provider of the consideration is not the determining factor in establishing the supplier (subsection 9-15(2) of the GST Act).
The lease agreement between the entity and the disabled person is not revoked by the partial novation agreement. The majority of the rights and obligations under the lease agreement between the entity and the disabled person still remain with the disabled person. As such, the entity is making a supply of the car to the disabled person.
Therefore, the entity is making a GST-free supply under subsection 38-510(1) of the GST Act when it leases a car to a disabled person and the leased car is under a partial novation arrangement between the disabled person and their employer.
The original lease agreement between the lessor and the employee is not revoked and the only obligation transferred to the employer is the obligation to make the lease payments.
Therefore, in these circumstances, where the conditions in section 38-510 of the GST Act are satisfied, an entity makes a GST-free supply of a car to an employee.
Date of decision: 5 September 2002
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
subsection 9-15(2)
Subdivision 38-P
section 38-510
subsection 38-510(1)
subsection 38-510(2)
paragraph 38-510(1)(a)
paragraph 38-510(1)(b)
ATO ID 2001/496
ATO ID 2002/121
Other References:
Cars & the GST - purchase by eligible people with disabilities - (Nat 4325)
Keywords
Goods and services tax
GST free
Cars for other disabled people
ISSN: 1445-2782
| Date: | Version: | |
| 5 September 2002 | Original statement | |
| You are here | 24 November 2006 | Archived |