I am just a simple person with little knowledge, understanding, experience and qualifications regarding taxation, finance and accounting. I have two main questions regarding the releasing of a vehicle under a Novated Lease for which I am hoping someone can provide some clarity for.
- The ATO's TD 93/142 and ID 2002/1004 state that the Residual Value (RV) for multiple leases of the same vehicle, irrespective of whether the vehicle is leased through the same company or another leasing company, is calculated on the total leased period, which is the sum of the years for which the vehicle has been leased for. In TD 93/142, the example given (Example 3), indicates that the RV is calculated based upon a 3-year lease where the vehicle is initially leased for 1-year followed by a subsequent 2-year lease Term.
- I have been advised by the novated lease services provider for the South Australian State Government that this method of calculating the RV is referred to by them as the "Aggregate Method" and it is not the method which they, or the finance providers, use to calculate the RV. Instead, their "Standard" method for calculating the RV for subsequent re-leases is to consider each re-lease Term as a "new lease". For example, if the vehicle was initially leased for a 5-year Term, and then re-leased for a subsequent 3-year Term, the RV calculated at the end of the 8-year combined Term is 46.88% of the RV value at the end of the initial 5-year Term.
- In contrast, the discussion in this Community here, in addition to the formula and statements made in the ATO's TD 93/142 and ID 2002/1004, indicate that the RV should be 0%, with the formula used being: RV = 75% - ( ( 75% / 8 ) x total lease period )
- There is no mention anywhere which I can find by the ATO where they provide an alternative method of calculating the RV for multiple subsequent novated leases of the same vehicle. Is it then permitted for the RV to be calculated using other formulas and processes?
- The same novated lease provider has stated, as required by the ATO, the Employee Contribution Method (ECM) to offset the FBT Liability for a vehicle which has been re-leased under a novated lease is calculated, for the re-leased Term, using a FBT Base Value which is based upon the original cost price of the vehicle minus any depreciation of the vehicle after a four-year lease Term, as opposed to a calculation of the FBT Base Value which is the RV of the vehicle at the end of the initial lease Term. Is the novated lease provider correct with their calculation of the ECM based upon the FBT Base Value being comprised of the original cost price of the vehicle minus depreciation, or should the ECM be calculated based upon an FBT Base Value from the RV?
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