Issue
Whether the payout of a novated lease which was paid as part of the taxpayer employee's redundancy package will be assessable in the hands of the taxpayer as an eligible termination payment (ETP), or whether it is to be treated as an expense fringe benefit.
Decision
The payout of a novated lease which was paid as part of the taxpayer's redundancy package will be assessable in the hands of the employee as an eligible termination payment (ETP), and not treated as an expense fringe benefit.
Facts
The taxpayer was offered a redundancy package by his employer which included the payout of a novated lease. The lease was in the taxpayer's name and gave the taxpayer clear title to the vehicle after the payout was made.
Reasons For Decision
The payout of a novated lease is an ETP, as defined in subsection 27A(1) of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936), as it was a payment made in respect of the taxpayer as a consequence of the termination of employment. The High Court in Reseck v FCT (1975) 133 CLR 45, has said that 'within the ordinary meaning of the words a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination' - refer also to the decision of the Full Federal Court in McIntosh v FC of T 79 ATC 4325, and Taxation Ruling TR 96/13
Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 defines 'fringe benefit' and specifically excludes an ETP within the meaning of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act 1936 at paragraph (k). The payout of the novated lease is, therefore, not an expense payment fringe benefit.