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Edited version of your written advice
Authorisation Number: 1013055954372
Date of advice: 1 August 2016
Ruling
Subject: Salary packaging and novated leasing
Question 1
Does the vehicle in question fit under the ATO guidelines to allow it to be eligible to be salary packaged via a novated lease?
Answer
This ruling applies for the following periods:
Year ended 30 June 2017.
Relevant facts and circumstances
The taxpayer intends to salary package their motor vehicle through a full novated lease via the statutory formula method. Under the full novated lease, the three parties (lessor, the taxpayer as lessee and the employer) will agree to a novation or transfer of all of the rights and obligations in the motor vehicle lease entered into between two of the parties (the lessor and lessee). As a result of the full novation, the employer takes over all the rights and responsibilities contained in the original lease.
The proposed salary packaging arrangement will meet the requirements for an eligible salary packaging arrangement:
• The arrangement will be entered into before the employee performs the work;
• There will be an agreement between the employee and employer;
• There will no access to the sacrificed salary.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Reasons for decision
A salary sacrifice or salary packaging arrangement is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages, in return for the employer providing them with benefits of a similar value.
The requirements for an effective salary sacrifice arrangement are:
• The agreement should be entered into before the employee perform the work;
• There should be an agreement between the employee and the employer - the contract is usually in writing, but may be a verbal one; and
• There should be no access to the sacrificed salary - the sacrificed salary must be permanently forgone for the period of the arrangement.
There is no restriction on the types of benefits that may be sacrificed. The important thing is that these benefits form part of your remuneration, replacing what otherwise could have been paid as salary.
Refer to the ATO guidelines at https://www.ato.gov.au/Individuals/Working/Working-as-an-employee/Salary-sacrifice-and-salary-packaging/
The types of benefits generally provided in salary sacrifice arrangements by employers include fringe benefits (such as cars, property and expense payments), exempt benefits and superannuation.
See Taxation Ruling TR 2001/10 for further details on salary sacrifice arrangements.
The proposed salary packaging arrangement will meet the requirements for an eligible salary packaging arrangement:
• The arrangement will be entered into before the employee performs the work;
• There will be an agreement between the employee and employer;
• There will no access to the sacrificed salary.
There are no restrictions on the type of car that may be salary packaged, or the way in which the car may be provided, whether by outright sale or via a novated lease.
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