The ATO product ruling relates only to Carly subscribers and sets the benchmark for the car subscription category. The product ruling does not provide coverage to any other car subscription offerings.
As a result, Carly is the only car subscription offering that can currently provide certainty of tax deductibility on car subscription payments.
The company said in a statement that Carly’s subscription model differs from a traditional lease or loan model. It therefore sought the opinion of the ATO on the tax status of Carly car subscription payments for business vehicles and it subsequently obtained a product ruling on its car subscription service.
The ATO Product Ruling (PR 2020/11), which applies from 26 August 2020, ensures subscribers can claim the car subscription payments as a tax deduction when the subscription is used for business or work purposes.
“Importantly the ruling covers individuals as well as businesses, which will be critical as Carly extends its offering into the business market,” the statement said.
“This ruling will provide certainty on the tax deductibility of Carly car subscription expenses for accountants and financial advisors who have been considering recommending car subscription to their clients.”
Carly CEO Chris Noone said: “Carly is always looking for ways to innovate and improve its service.
“The product ruling comes at the perfect time when working Australians and Australian businesses are looking at ways to increase their flexibility, de-risk finances and save on household or business budgets in the wake of COVID-19.
“Car subscription is a hot topic right now. We recently conducted research with Omnipoll* and found 38 percent of Australians would consider subscribing to a car rather than purchasing or leasing a vehicle.
The financial pressures created by COVID-19 were found to be a key factor in consumer attitudes towards car subscription, with 18 percent of Australians more likely to consider subscriptions as the best way to obtain a car compared to six months ago,” Mr Noone said.
The company said the ATO Product Ruling was specific to Carly and provided the following benefits for individuals and businesses:
- Individuals can claim subscription fee payments in their income tax return if the vehicle is being used for business or work purposes, including carrying out business travel between two places of work, or in the course of employment but not for private purposes.
- Businesses that use Carly can claim the full dollar amount of the subscription fee as a deduction if the cars are used in carrying out business and/or provided to employees for their usage. Fringe Benefits Tax is payable in respect of the portion of private usage by an employee.
- Businesses that reimburse employees can claim a deduction for the full dollar amount of all the Subscription Fees reimbursed to employees for the period of the subscription, as long as the car is used for business (which will be the case where the car is provided to an employee). The subscription fees will be subject to FBT if the expense is reimbursed by the business to the employee. A car fringe benefit will not arise under this scenario, but the reimbursement would be an expense payment fringe benefit.
Mr Noone said: “We approached the ATO to confirm and provide certainty for the tax outcomes of our subscribers. The new product ruling will make our car subscription product even more appealing, as individuals and businesses look to recession-proof their finances.”
“This product ruling will enable accountants and financial advisors to recommend a new vehicle access solution to their clients, which avoids long term financial commitments and debt, but with certainty of the tax deductibility of the expense.
“Carly was the first flexible monthly car subscription in Australia providing the freedom to switch your car to suit your lifestyle, with no deposit or long-term lock-in contracts, and registration, servicing and maintenance costs fully included,” Mr Noone said.
“We are pleased to continue to be a leader in the sector being the first and currently only car subscription provider that can provide tax certainty to subscribers. The benefits of this ruling only apply to a Carly car subscription.”
“The certainty provided by this ruling does not apply to any other car subscription services as it requires the arrangement to be strictly in accordance with the rules reviewed by the ATO and this particular ruling requires a Carly car subscription agreement.”
By John Mellor