Issue
Is the entity, a lessor of cars, making a GST-free supply under subsection 38-510(1) of the A New Tax System (Goods and Services Tax) 1999 (GST Act), when it leases a car to a disabled person and enters into a full novation arrangement with the disabled person and the disabled person's employer?
Decision
No, the entity is not making a GST-free supply under subsection 38-510(1) of the GST Act when it leases a car to a disabled person and enters into a full novation arrangement with the disabled person and the disabled person's employer.
The entity is making a taxable supply under section 9-5 of the GST Act.
Facts
The entity is a lessor of cars.
The entity leases a car to a disabled person and enters into a full novation arrangement with the disabled person and the disabled person's employer.
The full novation arrangement involves a lease agreement between the entity and the disabled person and a deed of novation (a tripartite agreement) between the entity, the disabled person and the disabled person's employer.
As the arrangement is a full novation arrangement, the deed of novation transfers all of the rights (for example, the right to determine who uses the vehicle) and obligations (for example, the obligation to make the lease payments, guaranteeing the residual value of the vehicle) of the disabled person, under the lease agreement, to the disabled person's employer.
The deed of novation also results in the original lease between the disabled person and the entity being revoked and replaced by the new novated lease arrangement.
The employer does not satisfy the requirements of subsection 38-510(1) of the GST Act to be certified as a 'disabled person' for the purposes of the GST Act.
The disabled person does satisfy the requirements of subsection 38-510(1) of the GST Act and is certified as a 'disabled person' and intends to use the car in their personal transportation to or from gainful employment during all of the Subdivision 38-P period.
The entity is registered for goods and services tax (GST). The supply satisfies all of the other positive limbs of section 9-5 of the GST Act.
Reasons for Decision:
Subsection 38-510(1) of the GST Act provides that a supply of a car is GST-free where it is supplied to an individual that is certified as a disabled person and intends to use the car in his or her personal transportation to or from gainful employment during all of the Subdivision 38-P period. The disabled person does satisfy the requirements of subsection 38-510(1) of the GST Act and is certified as a disabled person and intends to use the car in their personal transportation to or from gainful employment during all of the Subdivision 38-P period.
However, it needs to be determined whether the leasing of the car by the entity, under a full novation arrangement, is a supply to the disabled person and as such, a GST-free supply.
The entity leases a car to the disabled person and enters into a full novation arrangement with the disabled person and the disabled person's employer. Under this arrangement, all of the rights and obligations under the original lease agreement, between the entity and the disabled person, have been transferred from the disabled person to the disabled person's employer. The deed of novation also results in the original lease between the disabled person and the entity being revoked and replaced by the new novated lease arrangement.
As all of the rights (for example, the right to determine who uses the car) and obligations (for example, the obligation to make the lease payments, guaranteeing the residual value of the vehicle) under the lease agreement now rest with the employer and the original lease agreement has been revoked and replaced by the new novated lease arrangement, the entity is making a supply of the car to the disabled person's employer, rather than a supply to the disabled person.
The employer does not satisfy the requirements of subsection 38-510(1) of the GST Act to be certified as a disabled person for the purposes of the GST Act. As such, the supply of the car to the employer is not a GST-free supply under subsection 38-510(1) of the GST Act.
The entity is registered for GST and the supply of the car satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is not GST-free under any of the other provisions in Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it leases a car to a disabled person and enters into a full novation arrangement with the disabled person and the disabled person's employer. Note 1: Under a 'split full' novation agreement, an employer assumes all rights and obligations under a lease agreement, with the exception of guaranteeing the residual value of the vehicle. The original lease agreement is also revoked.
Therefore, where the requirements of section 9-5 of the GST Act are satisfied, the entity is making a taxable supply of the vehicle to the employer.