Ruling period: 1 July 2009 to 30 June 2010

Ruling: Question and Answer | Are you entitled to a deduction for motor vehicle expenses you incurred on a vehicle subject to a novated lease? | No.

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 have a motor vehicle under a novated lease. You incurred expenses in relation to motor vehicle insurance, services and a minor repair. All other expenses are covered by the novation.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 Income Tax Assessment Act 1197 Section 28-12 Income Tax Assessment Act 1936 Section 51AF Reason for Decision | Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. | Division 28 of the ITAA 1997 specifically deals with the deductibility of car expenses. Section 28-12 of the ITAA 1997 allows a deduction for car expenses to the taxpayer who owns or leases a car. | 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. | Irrespective of whether the lease is a fully novated or partially novated lease, you are not deemed to have incurred an expense in relation to the car. This is because under the terms of the agreement you novated to your employer all of the expenses relating to the vehicle. As such, you were provided with a car by your employer and it is your employer who was incurring the expense and fringe benefits tax liability. | In instances where a car is provided by an employer to an employee for their exclusive use with some portion of private use, section 51AF of the Income Tax Assessment Act 1936 (ITAA 1936) applies. Section 51AF of the ITAA 1936 specifically denies employees from claiming deductions in respect of a car expense. The employee is prevented from claiming a deduction for expenses because they are already used to reduce the employer's fringe benefits tax liability. The expenses have been factored into the formulas used to calculate fringe benefits tax assessed to the employer and if the employee was also entitled to claim a deduction for the expenses then there would be double dipping. | Therefore, you are not entitled to claim a deduction for motor vehicle expenses incurred on a car that is subject to a novated lease.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. Division 28 of the ITAA 1997 specifically deals with the deductibility of car expenses. Section 28-12 of the ITAA 1997 allows a deduction for car expenses to the taxpayer who owns or leases a car. 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. Irrespective of whether the lease is a fully novated or partially novated lease, you are not deemed to have incurred an expense in relation to the car. This is because under the terms of the agreement you novated to your employer all of the expenses relating to the vehicle. As such, you were provided with a car by your employer and it is your employer who was incurring the expense and fringe benefits tax liability. In instances where a car is provided by an employer to an employee for their exclusive use with some portion of private use, section 51AF of the Income Tax Assessment Act 1936 (ITAA 1936) applies. Section 51AF of the ITAA 1936 specifically denies employees from claiming deductions in respect of a car expense. The employee is prevented from claiming a deduction for expenses because they are already used to reduce the employer's fringe benefits tax liability. The expenses have been factored into the formulas used to calculate fringe benefits tax assessed to the employer and if the employee was also entitled to claim a deduction for the expenses then there would be double dipping. Therefore, you are not entitled to claim a deduction for motor vehicle expenses incurred on a car that is subject to a novated lease.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.