Private ruling: Motor vehicle expenses
Date of advice: 7 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for work-related travel expenses using the cents per kilometre method for a car under a salary sacrifice arrangement (SSA)? | A1: No


Relevant legislative provisions: Income Tax Assessment Act 1936 Section 51AF. | Income Tax Assessment Act 1997 Section 28-12.

Reasons for decision: Summary: A novation is an arrangement whereby all or some of the rights or obligations of an employee (lessee) in relation to a leased property are transferred to the employer. Motor vehicle leases are the most common subject of a novation arrangement. The arrangement is achieved by way of a deed of novation between the finance company (lessor), the employee and the employer that will revoke the original lease between the finance company and the employee. Where an employee's use of the vehicle includes private as well as work-related travel a fringe benefit is provided to the employee and this will generally incur fringe benefits tax for the employer. In instances where a motor vehicle 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) prohibits employees from claiming deductions in respect of a car expense. The section prevents double dipping so that an employee cannot claim expenses already factored into the formulas used to calculate the fringe benefits tax assessed to the employer. Section 51AF of the ITAA 1936 was intended to ensure that any contribution by the recipient (of the car benefit) was used solely to reduce the employer's fringe benefit tax liability. It was not intended that the same expenditure could be used to gain a deduction for the employee. In addition, section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for car expenses if you own or lease a car. Taxation Ruling TR 1999/15 deals with the taxation consequences of certain motor vehicle lease novation arrangements. Paragraph 25 of TR 1999/15 states that in a full novation the lease payment obligations are transferred to the employer. It is explained in paragraph 27 of TR 1999/15 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, 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 your case, your employer has provided a car for you through a novated lease under a SAA. Therefore, you do not own or lease the car. Accordingly you are not entitled to a deduction for car expenses under section 28-12 of the ITAA 1997.

Relevant facts: You are employed with an entity. | You travel as part of your employment. | Your employer has a fleet of cars available to undertake this travel. | You use your private vehicle to travel when your employer does not have a car available. | You are paid an allowance to compensate you when you are required to use your own vehicle. | Your private vehicle is subject to a novated lease as a result of a SSA you entered into with your employer.