Private ruling: Motor vehicle expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you claim a deduction for excess kilometres and excess fuel expenses? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 51AF. | Income Tax Assessment Act 1936 Section 51AH.

Reasons for decision: Summary: Salary sacrifice is an arrangement by which an employee agrees to forego part of their future salary or wages in return for their employer providing benefits of a similar value. A contractual agreement with your employer to alter your salary package by exchanging part of your future salary or wages for another benefit is called a Salary Sacrifice Agreement (SSA). The effect of a SSA for the employee is generally that the employees assessable income is reduced, thereby reducing their tax liability. Taxation Ruling TR 1999/15 deals with taxation consequences of certain motor vehicle lease novation arrangements. Paragraph 25 of TR 1999/15 states that in a full novation, the lease obligations are transferred to the employer. Accordingly, there are no income tax consequences for the employee during the period when the employer makes the lease payments. It is explained in paragraph 27 that the employer becomes the lessee under the novated lease. This view is also supported by the Commissioners view outlined in Taxation Ruling IT 2509 which deals with the tax implications of a car being leased by an employee, then subleased to the employer and subsequently provided back to the employee by the employer. Specifically at paragraph 25 it explains an employee is not allowed an income tax deduction that he or she incurs in relation to the car because of the application of section 51AF and section 51AH of the Income Tax Assessment Act 1936 (ITAA 1936). Section 51AF of the ITAA 1936 specifically denies any deductions for expenses relating to a car which is provided by an employer to an employee for his or her exclusive use and the employee is entitled to use it for private use. In your case, you entered into a fully novated lease arrangement resulting from a SSA. As a consequence of this, under the terms of a fully novated lease agreement, all of the rights and obligations would be transferred to your employer. Even though you were required to pay the excess charges, they relate to a car provided by your employer. Therefore, you are not entitled to a deduction for car expenses as it is specifically denied under section 51AF of the ITAA 1936.

Relevant facts: You have salary packaged a motor vehicle under a three year fully novated lease. | A condition of the lease was that you travelled a set amount of kilometres and you actually travelled more. You also used excess fuel. | Your job was made redundant two months prior to the end of the three year lease. | The lease payments were made by your employer for the full period. | You were required to pay an amount for the excess kilometres and excess fuel.