ATO Guidance on Car Leasing Fringe Benefits

The ATO recently provided guidance in relation to what constitutes a bona fide car leasing arrangement.  This is particularly relevant for a car that is provided as a fringe benefit using a novated lease agreement.

As well as explaining certain conditions that need to be satisfied for a car leasing arrangement to be bona fide, the ATO guidance also discusses situations where an employee makes a contribution towards the cost of the car.

Previously it was generally not possible for a contribution to be made by an employee and the total cost of the car needed to be financed when a lease was used.  In this updated guidance the ATO has an example where an employee pays the car dealer directly for the on-road costs associated with the purchase (i.e. registration, stamp duty and dealer delivery fee) and the balance is then financed using a lease.  The ATO now states that this contribution by the employee is permissible and the lease arrangement will still be genuine, even though it is not for the full cost of the car.  This is advantageous as the ability for the employee to make a contribution means that the lease payments will be lower.

However, where a substantial contribution is made by an employee (e.g. a trade-in of their previous vehicle) and the cost is reduced by this amount then the lease will not be bona fide.  This will mean that the lease arrangement does not result in an employer-provided car fringe benefit.  The type of fringe benefit that arises under a non-bona fide lease will be ineligible for concessional fringe benefits tax treatment, and will not be tax effective.

The ATO guidance can be accessed here.