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Edited version of private ruling
Authorisation Number: 1011597619858
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Ruling
Subject: Novated lease
Question and Answer
Are you assessable on the refund of the budgeted surplus on your novated lease?
Yes
This ruling applies for the following period:
Year ended 30 June 2010
The scheme commenced on:
1 July 2009
Relevant facts and circumstances
You entered into a novated lease arrangement with your employer, as part of your salary package.
You ceased your employment prior to the completion date of the lease.
Between the time you ceased employment and a later date, you made payment for the items which had previously been part of the novated lease package, including fuel costs, services, repayments, residual payout, insurance and tyres.
The novated lease provider refunded to you a sum being the difference between the estimated costs and kilometres budgeted for at the commencement of the lease and the actual expenses for the period of the term.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 23L.
Income Tax Assessment Act 1997 Subsection 6-5(1).
Income Tax Assessment Act 1997 Section 6-15.
Fringe Benefits Tax Assessment Act 1936 Section 23L
Reasons for Decision
An employee's remuneration package may include salary, wages or fringe benefits provided by the employer.
Salary or wages are considered to be income according to ordinary concepts under subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and are therefore assessable income.
Income provided in the form of fringe benefits, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), are exempt income under subsection 23L(1) of the Income Tax Assessment Act 1936. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income it is not assessable income.
The definition of fringe benefit under subsection 136(1) of the FBTAA specifically excludes a payment of salary or wages.
If a fringe benefit has not been provided and is cashed out at the end of a salary sacrifice arrangement accounting period, the amount cashed out is salary and is taxed as normal income.
Your case
In your case you took out a novated lease from a lease provider with your then employer. You ceased your employment prior to the completion date of the lease. You received a refund from the novated lease provider being the difference between the estimated costs and kilometres budgeted for at the commencement of the lease and the actual expenses for the period of the term.
You received the refund because the full value of benefit to be provided as part of your salary sacrifice arrangement was not delivered. As such, the refund you received is considered to be salary and wages and thus constitutes assessable income.