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Edited version of your private ruling
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Ruling
Subject: Input tax credits
Question
Are you entitled to a deduction or credit for GST paid under your novated lease?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commenced on
1 July 2009
Relevant facts
You have a novated lease between yourself, your employer and entity A.
Your employer has not claimed the monthly input tax credit.
The car is for your use only and can be used for private purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 28-12.
Income Tax Assessment Act 1936 Section 51AF.
Reasons for decision
A novation is an arrangement whereby all or some of the rights or obligations of an employee (lessee) in relation to a leased property are transferred to the employer. Motor vehicle leases are the most common subjects of a novation arrangement.
The arrangement is achieved by way of a deed of novation between the finance company (lessor), the employee and the employer that will revoke the original lease between the finance company and the employee.
Where the employee's use of the vehicle includes private as well as work-related travel a fringe benefit is provided to the employee and this will generally incur a fringe benefits tax for the employer.
In instances where a motor vehicle is provided by an employer to an employee for their exclusive use with some portion of private use, section 51AF of the Income Tax Assessment Act 1936 (ITAA 1936) prohibits employees from claiming deductions in respect of a car expense. The section prevents double dipping so that an employee cannot claim expenses already factored into the formulas used to calculate the fringe benefits tax assessed to the employer. Section 51AF of the ITAA 1936 was intended to ensure that any contribution by the recipient (of the car benefit) was used solely to reduce the employers fringe benefit tax liability. It was not intended that the same expenditure could be used to gain a deduction for the employee.
Section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for car expenses if you own or lease a car.
Taxation Ruling TR 1999/15 deals with taxation consequences of certain motor vehicle lease novation arrangements. Paragraph 25 of TR 1999/15 states that in a full novation the lease payment obligations are transferred to the employer. It is explained in paragraph 27 of TR 1999/15 that the employer becomes the lessee under the novated lease.
Irrespective of whether the lease is a fully novated or partially novated lease, you are not deemed to have incurred an expense in relation to the car. This is because under the terms of the agreement you novated to your employer all of the expenses relating to the vehicle. As such, you were provided with a car by your employer and it is your employer who was incurring the expense and fringe benefits tax liability.
Similarly, GST is also incurred by your employer. Input tax credits are only claimable by the entity that pays the GST. Such credits are only claimable if certain requirements are met. There is no provision in the GST legislation that allows you a credit or any other claim for the amount of GST paid on your novated lease.
In your case, your employer provided a car for you through a novated lease. We acknowledge that your employer did not claim the input tax credits on your novated lease, however there is no provision in the income tax legislation that allows an employee a deduction in your specific circumstances.
As you do not own or lease the car, you are not entitled to a deduction for car expenses under section 28-12 of the ITAA 1997. The fact that the payments are deducted from your salary package in relation to the car does not change the above principles. There is no provision in the ITAA 1936 or ITAA 1997 that allows a deduction, tax offset or other claim in relation to the GST paid.
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