Edited version of your private ruling

Authorisation Number: 1012532020983

Ruling

Subject: associate lease

Question 1

Are the lease payments made under an associate lease arrangement assessable?

Answer

Yes.

Question 2

Are you entitled to a deduction for car costs incurred when the car is part of an associate lease arrangement?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You are providing two existing private vehicles as part of an associate lease arrangement. You have agreed to lease the vehicles to your spouse's employer.

You receive fortnightly lease payments from your spouse's employer. The amount paid to you is calculated based on the running cost estimates provided for each vehicle.

You signed a change of ownership form stating that the vehicles have been gifted to you.

Your spouse may make the vehicle available for the use of you and your associates.

The lease payments from your spouse's employer are made partially from your spouse's pre-tax salary and partially from your spouse's post tax salary.

Under the agreement with your spouse's employer, all risk of loss of the vehicle or damage to it shall be borne by you. You were required to obtain vehicle insurance cover and to be responsible for all maintenance costs.

Upon the end of the lease, the employer shall release possession of the vehicle to you.

You received lease payments in the 2012-13 income year.

You are incurring running costs in relation to this vehicle. You incurred car costs in the 2012-13 income year.

The associate lease arrangement has been organised by a company which was appointed by your spouse's employer.

The company has advised you to declare the lease payments as other income on your tax return with a description of the business activity as 'passenger car rental and hiring'.

The company advises that the running costs of the vehicle are deductible. Running costs include fuel, maintenance and servicing, registration, insurance, roadside assistance, car wash, depreciation and interest on loan if applicable.

The company provides you with an income statement, depreciation schedule and tax tips sheet. The information provided by the company is on the assumption that the only business activity being carried on by the associate is the provision of a vehicle as part of an associate lease arrangement.

Your spouse pays fees in relation to the associate leasing arrangement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Reasons for decision

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Generally, the lease payments received by the lessor for the letting of equipment, assets or vehicles owned by the lessor would have ordinary income character.

Taxation Ruling IT 2509 provides that any lease rental paid under the sublease to an associate (that is, usually the spouse) would be assessable income of the associate.

In your case, you are the lessor of the two vehicles that will be leased to your spouse's employer through an associate lease arrangement. Regular lease payments will be made to you as the lessor under the lease arrangement.

The lease payments are assessable to you under subsection 6-5(2) of the ITAA 1997.

Allowable deductions

You are the owner of the cars. As the cars are being used for income producing purposes, you are entitled to a deduction for your car expenses incurred including fuel, maintenance, registration, insurance and depreciation.