Announcements
Looking for answers? Search our popular topics or ask a new question.

ATO Community

Re: Novated lease credit refund

Newbie

Views 5020

Replies 8

Where at the end of the relevant novated lease period, there is a credit in the novated lease account with the leasing company where actual operating cost on the vehicle is less than budgeted operating cost. In such a case the leasing company will release the credit to the employer to be paid back to the employee.

 

What would be the tax treatment on the employee for those credits? Credit arising from pre-tax amount subject to PAYG (employer to withhold) and subject to income tax on the employee in the year received? Credit arising from post-tax amount not subject to PAYG (employer already withheld in the past) and subjec to income tax on the employee in the year received?

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

Devotee

Replies 7

Hi @mickamix,
 
Thanks for getting in touch. Yes, the amount received by an employee in this context is a cash amount received in respect of the employee’s  employment and needs to have PAYG withheld. This amount will need to be declared as part of the employee’s  income in the year when the employee receives the amount.
 
In the standard situation the employer will have paid money in to the facilitator  of the car arrangement to pay for items such as lease payments under the novated lease. When the employer obligation to make the lease payment ceases the money that the employer has had set aside for the lease payments is then given to the employee. This means that there is now just a payment by a third party on behalf of the employer of the employer’s contributed money to an employee. Hope that helps! Thanks.

8 REPLIES 8

Most helpful response

ATO Certified Response

Devotee

Replies 7

Hi @mickamix,
 
Thanks for getting in touch. Yes, the amount received by an employee in this context is a cash amount received in respect of the employee’s  employment and needs to have PAYG withheld. This amount will need to be declared as part of the employee’s  income in the year when the employee receives the amount.
 
In the standard situation the employer will have paid money in to the facilitator  of the car arrangement to pay for items such as lease payments under the novated lease. When the employer obligation to make the lease payment ceases the money that the employer has had set aside for the lease payments is then given to the employee. This means that there is now just a payment by a third party on behalf of the employer of the employer’s contributed money to an employee. Hope that helps! Thanks.

I'm new

Replies 2

I am in the same situation where I have recieved a refund on a novated lease payments where running cost where less than expected ($14K over 3 years). I funded this from my salary using both Pre and Post Tax (Employee Contirubtion).  AmandaE am I right to assume by your answer that the running cost refund is treated as amounts contributed soley Pre-Tax (therefore refund subject to PAYG) rather than post -tax  or a propotion of pre and post tax contributions.? The Superannuation kicker, if this refund is deemed part of my taxable for the period recieved and suject to PAYG should my employer also pay the stautory Super Contirbution on this amount.

Thanks

Tim_H

Community Support

Replies 1

Hi @Tim_H,

 

Thanks for getting in touch!


We're checking information with a specialist area regarding your query and hope to get back to you as soon as possible.

 

Thanks, JodieH.

I'm new

Replies 0

Hi @JodieH 

I don't think I quite got an answer re: double taxation of the refund.

 

I'm at the end of my 4 year lease and have the option to extend.

Previously, my budget was set at 1k (900 rental and 100 running costs) of which 900 was post-tax and 100 is pre tax.

The new budget is also set at 1k but is now made up of 500 rental and 500 running costs. Post and pre-tax contribution remains the same.

 

I also have a current budget surplus of approximately 7k (the majority of which is pre-tax dollars).

However, under the new arrangement any unspent portion would be made up of mainly post-tax dollars.

Assuming I add on a further 1k to the surplus, and have 8k to be refunded to me at the end of the lease - is the 8k fully taxable and deemed to be 100% pre tax. Or is it deemed to be 7k pre-tax and 1k post-tax and therefore PAYG and Income tax only applicable to the portion that is pre-tax?

 

 

Newbie

Replies 1

AmandaE, I have a similar scenario but under an ECM Lease

 

As we cannot determine the portion of the surplus that would have come from Pre or Post Tax deductions would the ATO consider it appropriate to apportion the Surplus according to the ECM Percentage split?

 

i.e., if the Pre Tax Portion is 40% of the Lease and the balance of Post Tax is 60% could we consider 60% of the Surplus already was Taxed when it went in so only 40% of the Surplus is Taxed at the PAYG Level on the way to the employee.

 

Otherwise we are double Taxing the Post Tax portion, once on the way in and again on the way out

 

Interesting one isn't it

 

 

 

Community Support

Replies 0

Hi @Tim_H

 

Thanks for your patience whilst we checked information with a specialist area regarding your query!

 

A salary sacrifice arrangement is between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages. This is in return for the employer providing them with benefits of a similar value.

 

A novated lease is a three way deal between an employee, a lease company and the employer. The employee owns the car, and the employer agrees to make the lease repayments to the lease company for the car as a condition of employment.

 

The lease payments for the car and associated running costs are made from the pre-tax salary sacrificed income.  In some cases the associated running costs may be paid from the employee’s after-tax income.

 

Under a salary sacrifice arrangement the employee will pay income tax on the reduced salary or wages and the employer will have an obligation to pay the minimum superannuation guarantee amount of 9.5% on the reduced salary or wages that are part of an employee’s ordinary time earnings (OTE). OTE is usually the amount an employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but not overtime payments.

 

Where the leasing company refunds running cost payments to the employer, this amount will be reimbursed to the employee from their foregone salary or wages and will form part of their assessable income. Where the reimbursement relates to a salary sacrifice amount from an employee’s OTE then it will form part of the superannuation guarantee calculation. 

Superannuation guarantee will not be payable on a reimbursement of employee contributions from their after-tax income. 

 

Hope this helps, JodieH. 

Newbie

Replies 1

Hi, 

 

Just following on from this with the current COVID situation. 

 

If having been stood down an employee is instructed to cancel their novated lease and therefore due a refund.  The cancellation was made after 30th March, but prior to JK being announced, therefore the refund is made up of money earned prior to stand down or COVID.  Can the employer withhold JK when the refund is made?

 

thanks.

ATO Certified Response

Community Support

Replies 0

Hi @manyquestions ,

 

Thanks for your question.

 

To be eligible to receive the JobKeeper payments on behalf of an eligible employee the employer needs to pay the employee at least $1500 (before tax) during the JobKeeper fortnight.

 

The employer can't withhold JobKeeper payments, these need to be forwarded on to you. The employer can satisfy the minimum $1500 (before tax) by paying amounts earned in an earlier period.

 

Please see Paying your eligible employees for details on the employer's requirements

  • How much to pay
  • Payment types - this section lists the payment types that can make up the minimum $1500 (before tax). The payment type that the refund relates to may or may not be allowed to make up part of the minimum $1500 (before tax). Please refer to the payment types information and apply it to your circumstances to determine.

 

Thanks for posting and I hope this helps,

JasonT