ATO Interpretative Decision

ATO ID 2003/320 (Withdrawn)

Income Tax

• This ATO ID is a simple restatement of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a taxpayer required, under subdivision 20-B of the Income Tax Assessment Act 1997 (ITAA 1997), to include in their assessable income any profit that they make on the disposal of a car that is the subject of a split fully novated lease arrangement?

Decision

No. A taxpayer is not required, under subdivision 20-B of the ITAA 1997, to include in their assessable income any profit that they make on the disposal of a car that the subject of a split fully novated lease arrangement as the lease payments are not paid or payable by the taxpayer.

Facts

The taxpayer is an employee. The taxpayer is not in business.

The taxpayer enters into a split fully novated car lease arrangement with the employer and the lessor under a salary sacrifice arrangement. Under this arrangement the lease payment obligations are transferred to the employer. The residual payment obligations remain with the taxpayer.

The taxpayer's employer is not their 'associate'.

At the end of the lease, the taxpayer pays the residual and buys the car from the finance company and then sells the car.

The consideration received from the disposal of the car exceeds the residual price.

The car has not been leased to another person or entity.

Reasons for Decision

Subdivision 20-B of the ITAA 1997 details the circumstances in which a taxpayer's assessable income will include the profit they make on disposal of a leased car.

Section 20-110 of the ITAA 1997 provides that a taxpayer's assessable income includes the profit that they make on disposal of a car where:

•

the car, designed mainly for carrying passengers, is leased to the taxpayer and has not been leased to anyone else

•

the lease payments are paid or payable by the taxpayer

•

the lease payments are deductible to the taxpayer or to another entity; and

•

the taxpayer acquired the car from the lessor.

All of the conditions set out in section 20-110 of the ITAA 1997 must be satisfied for a profit from the disposal of leased car to come within the ambit of section 20-110 of the ITAA 1997. One of the requirements that must be met for section 20-110 of the ITAA 1997 to apply is that the lease payments are paid or payable by the taxpayer.

The lease payments are not paid or payable by the employee taxpayer under a split full novation arrangement as the lease payment obligations are transferred to their employer (paragraph 34 of Taxation Ruling TR 1999/15).

Therefore, a taxpayer is not required under section 20-110 of the ITAA 1997 to include in their assessable income any profit arising on the disposal of a car that is the subject of a split fully novated lease.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 20-110

Related Public Rulings (including Determinations)
Taxation Ruling TR 1999/15

Keywords
Lease financing
Lease residual values

Business Line:  Business and Personal Taxes Centre of Expertise

Date of publication:  16 May 2003

ISSN: 1445-2782