What is an Associate Lease?
An Associate Lease is an agreement where an associate of the employee (typically spouse or partner), leases an existing or replacement car to the employee’s employer. The employer then provides the car to the employee via a pre tax salary sacrifice arrangement. I.e. The employee pays for most of the vehicles operating costs from their pre tax salary as a salary sacrifice arrangement.
What are the benefits of an Associate Lease?
The associate usually has a lower income than the employee. So after the associate claims depreciation and car loan interest (if any), the associate’s taxation liability from the lease rentals is minimal (or zero).
The cars operating costs (fuel, insurance ect) are paid for in pre tax salary by the employee.
There may also be GST savings, depending on how the lease is structured.
The pre tax salary sacrifice results in significant tax savings for the employee. E.g. The savings can offset the annual fuel costs and any car loan interest.
I.e. “Free” petrol and “interest free” car loan finance, by entering into an Associate Lease agreement.
Is there an age limit on cars to be Associate Leased?
No. Unlike a Novated Lease, an Associate lease has no car age limit.
Can I add an Associate Lease to an existing family car?
Yes. Most employees who have a spouse or partner could save $1,000’s p.a. by structuring their existing car(s) under an Associate Lease arrangement.
Contact Salary Packaging Gurus today to see how much you could be saving.
How does car fringe benefits tax affect me?
20% of the car base FBT value is assessed for car FBT.
How is the car base FBT value calculated?
New cars: on-road cost, minus Rego, CTP, Stamp Duty and extended warranty
Replacement used cars: on-road cost minus Stamp Duty and extended warranty
Existing cars: Fair and well considered retail value
Will I be charged Fringe Benefits Tax on my packaged car?
Generally no. Employees earning under $180,000 will mostly make an after-tax payment to eliminate the car FBT. The salary package structure is usually both after-tax and pre-tax salary sacrifices.
Is there a further salary package cost created by the after-tax component of the salary sacrifice?
Yes. GST is payable by the employer on the after-tax component paid to the employer. Therefore one eleventh of the after-tax amount is added to the pre tax salary sacrifice component.
As associate leases are usually more effective, who can be the employee’s associate? Spouse, partner, sibling, parent, child over 18, family company or trust.
Spouse/partner has an existing car that is owned or financed. Employee needs a replacement car, and the spouse/partner will buy and register the car. The employee cannot be the registered owner.
Does the associate register for GST?
No, but the associate must have an ABN and an individual (not joint) bank account.
Do I have to keep track of the odometer readings?
Yes. The odometer reading at the start date of the Associate lease is needed, also on March 31 each year, or when the lease is terminated as a result of the employee leaving, lease expiring, car total loss or early payout.
Can the employee claim any interest or depreciation expenses after packaging an associate lease?
No. The associate in an associate lease arrangement claims 100% of any car cost loan interest, plus depreciation on non-luxury cars (under $57,581 until 30.06.2018).
How are associate lease rentals calculated?
The factors are the car purchase price, lease term, the ATO minimum residual value percentages, and a commercial simple interest rate of return for the associate, given the associate is taking the residual risk. These rentals are not “a dart at the board” but are calculated on a completely commercial basis.
What are the residual values payable under an associate lease?
As the lease is an operating lease, there is no residual payable. The associate, if he or she has borrowed to buy a car, may have a balloon payment at the end of the car loan, but this will usually be lower than the amount of any Novated Lease residual plus GST.
Can the associate create tax losses over the total timeframe of the associate lease?
No. The associate must have created taxable income, and to have had a positive cash flow from paying any car loan repayments, after receiving the associate lease rentals.
What car operating costs can I include in my Associate Lease salary package salary sacrifice?
Registration, compulsory third party, fuel/oil, comprehensive insurance, repairs, routine servicing, tyres, car washes, roadside assist organization and detailing.
What costs cannot be included?
Traffic fines, parking fines, road tolls, bridge tolls, driver’s licence
We show you how to salary sacrifice and the best way of packaging your salary and usually without FBT