Private ruling: Work related expenses
Date of advice: 14 June 2022
Published: September 2022
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim a deduction for expenses on your leased vehicle? | A1: No.

Relevant facts and circumstances: You have a vehicle which is under a novated lease arrangement. The vehicle has been treated as 100% private use under the salary sacrifice arrangement handled by the salary packaging company. You have paid for all private use on the vehicle by having after tax deductions from your fortnightly pay. The vehicle is almost 100% used for work related travel. You are also paid a car allowance of $XXX which you declare in your tax return.

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 employee's 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 novated lease arrangement resulting from a SSA. As a consequence of this, under the terms of a novated lease agreement, all of the rights and obligations would be transferred to your employer. 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.