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Edited version of private ruling
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Ruling
Subject: GST and entitlement to GST credits
Are you entitled to a GST credits in respect of the running costs (particularly in respect of CTP and other insurances) of the motor vehicle under the Novated lease agreement?
Answer: No.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
Your employees entered into a lease agreement with a financier.
The lease agreement was novated to you under a Deed of Novation (Deed).
You, as an employer provide motor vehicle to your employees under the Deed.
You have provided a copy of the Deed and the schedule to the Australian Taxation Office.
In accordance with the novated lease agreement, you are not liable to provide consideration for the maintenance and running costs (including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel). You are liable for the lease payment only.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 11-5
Summary
You are not entitled to GST credits in respect of the running costs (particularly in respect of CTP and other insurances) of the motor vehicle under the novated lease agreement.
Detailed reasoning
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to input tax credits for its creditable acquisitions.
Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:
· it acquires anything solely or partly for a creditable purpose
· the supply of the thing to it is a taxable supply
· the entity provides or is liable to provide consideration for the supply, and
· the entity is registered or required to be registered for GST.
Under a novated lease agreement, the supply of the right to use the motor vehicle is effectively being made to the employer rather than the employee. Therefore, the supply is made to the employer.
The novated lease is acquired by the employer and it would be acquired in the course of carrying on the employer's enterprise.
In respect of the novated lease agreement, you and the financier have entered into a binding agreement consisting of all the provisions of the vehicle lease.
Furthermore, according to the novated lease agreement your employee is responsible for all maintenance and running costs in relation to the vehicle (including registration fees, third party insurance premiums, repairs, replacements parts, oil and fuel), while the employee has use of the vehicle.
Under the salary sacrifice agreement and in accordance with clause 5 of the novated lease agreement, you are responsible for lease payments only and your employees are responsible for all maintenance and running costs in relation to the vehicle (including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel).
In this case, you are not required to provide consideration for the supply in relation to the maintenance and running costs of the vehicle (including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel). This means that you do not satisfy the third dot point of section 11-5 of the GST Act.
You, therefore, do not satisfy all of the conditions of section 11-5 of the GST Act. Hence you are not making a creditable acquisition in relation to the maintenance and running costs of the vehicle under the Novated lease agreement.
Therefore, in this case, you, as the employer, are not entitled to claim GST credits in relation to the maintenance and running costs of the vehicle (including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel).