Edited version of private ruling

Authorisation Number: 1011698832460

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Ruling

Subject: GST and entitlement to GST credits

Question 1

Is the employer (you) entitled to GST credits where you do not have a legal liability to reimburse your employees for running costs including CTP and insurance under Novated lease agreements but choose to do so where the vehicles are registered for private use?

Answer

Yes.

Question 2

Are you entitled to claim GST credits when you choose to reimburse your employees for running costs including CTP and insurance where a vehicle is registered for business use?

Answer

Yes.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

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.

The Deed provides:

Novated Vehicle Lease And Termination Payment Obligations

Subject to and with effect from the date of this deed The Employer and the Financier will be deemed to have entered into a binding agreement consisting of all the provisions of the Vehicle Lease, except the Termination Payment Obligation, as if references to the Employee were reference to the Employer.

With effect from the date of this deed the Employee and the Financier will be deemed to have entered into a binding agreement under which the Employee has the Termination Payment Obligations that The Employer would have had if those obligations were included in the Novated Vehicle Lease.

The Deed also provides the following:

USE OF VEHICLE

The Employer will make the Vehicle available, until the Employee Novation Date, for possession and use by the Employee. The Financier consents to The Employer doing so.

EMPLOYEE'S OBLIGATIONS

While the Employee has use of the Vehicle, the Employee shall be 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) and shall keep the Vehicle in good condition and working order;

In accordance with the agreement, you are not liable to reimburse the employees for the maintenance and running costs (including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel) under the salary sacrifice arrangement with the employees. You are liable for the lease payment only. However, later you decided to enter into an agreement with your employees to reimburse their running costs including CTP and insurance under the salary sacrifice agreement.

Some of the vehicles the employees use are registered for private use.

Some of the vehicles the employees use are registered for business use.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 111-5

Reasons for decision

Question 1

Summary

Yes, you are entitled to GST credits where the company does not have a legal liability to reimburse the employee for running costs including CTP and insurance under a Novated lease agreement but choose to do so where the vehicles are registered for private use.

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 Deed, you and the financier have entered into a binding agreement consisting of all the provisions of the vehicle lease.

Furthermore, the Deed provides the following:

§ While the employee has use of the Vehicle, the employee shall be 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) and shall keep the Vehicle in good condition and working order.

§ Regardless of the novated lease agreement, you stated that you have chosen to reimburse your employee 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 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 satisfy the third dot point of section 11-5 of the GST Act.

§ You, therefore, satisfy all of the conditions of section 11-5 of the GST Act. Hence you are making a creditable acquisition on all of the costs including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel.

§ Therefore, in this case, you, as the employer, are entitled to claim GST credits on all of the costs including registration fees, third party insurance premiums, repairs, replacement parts, oil and fuel.

§ However, you should consider the fringe benefit tax consequences. For further details on fringe benefit tax consequences, please refer to the enclosed document on Fringe Benefits Tax - A Guide for Employers,

Question 2

Summary

You are entitled to claim GST credits when you are under an arrangement with your employees to pay for running costs including CTP and insurance to the extent that the vehicle is registered for business use.

Detailed reasoning

Under the GST Act, a benefit provided in respect of the employment of an employee is also a GST creditable benefit if:

The benefit consists of:

§ a thing (as defined in the Goods and Services Tax Act 1999)

§ interest in such a thing

§ a right over such thing

§ a personal right to call for or be granted any interest in or right over such a thing

§ a licence to use such a thing, or

§ any other contractual right exercisable over or in relation to such a thing, and

§ the thing was acquired or imported where either the person who provided the fringe benefit is entitled to a GST credit under the GST Act because of the acquisition or importation.

Reduction in taxable value where an expense that would have been deductible to the employee is incurred in relation to a car

Where an expense payment fringe benefit is provided in relation to a car owned or leased by the employee, there are special rules for determining how much, if any of the employer's expenditure would have been 'otherwise deductible' to the employee.

These special rules are actually three different methods of calculating the amount of the expense that hypothetically would have been income tax deductible to the employee (that is, step 2 in the four-step procedure explained in section 9.4 in the enclosed Fringe benefits tax - a guide for employers). The difference arises from the extent to which the car is used for business or employment-related purposes, and/or the type of evidence available to substantiate that use.

The first method is substantiated by means of log book records and/or odometer records. The second and third methods are substantiated by an employee declaration only.

For full details and the appropriate declaration, refer to Employee cars - applying the 'otherwise deductible' rule. The employee declaration (shown in section 9.5 of the enclosed Fringe benefits tax - a guide for employers) is not suitable for an expense incurred in relation to a car.

Accordingly, you are entitled to claim GST credits when you are under an arrangement with your employees to pay for running costs including CTP and insurance to the extent that the vehicle is used for business purposes.