Car lease business boost in doubt

By KARYN SCHERER

Hopes by the vehicle leasing industry of a big boost in business following a favourable tax ruling could prove short-lived.

Finance Minister Michael Cullen has called for a report on an Inland Revenue ruling which the industry claims could save companies around $50 million a year in GST and fringe benefit tax.

The department has capitulated after a long-running battle with Esanda Fleet Partners (formerly Avis Lease) over its annual renewable leases.

Fringe benefit tax on leased vehicles is calculated on the vehicle's purchase price for the entire time it is leased, usually in three-year blocks.

Like many in the industry, Esanda offers what is known as a "one plus one plus one" lease deal which enables customers to reduce their tax liability.

Although the department has warned that other companies are not necessarily covered by its ruling, the practice is common.

A spokeswoman for Dr Cullen confirmed the Government was concerned about the potential loss of revenue.

The issue would be part of a general review of fringe benefit tax to be carried out next year, she said.

"The potential loss of revenue obviously has ramifications but it's a question of an interpretation of the law.

"At the moment we're just looking at getting to grips with the background to the ruling".

Inland Revenue has not yet published its ruling on the Esanda case. However, it confirmed this week it was planning to do a wider ruling, which could affect the whole industry, later this year.