Even accountancy firms are now jumping on the bandwagon, and providing over stated or incorrect comparison gains, from car associate lease versus novated lease salary sacrifices.
Salary Packaging Gurus have slightly amended the accountancy firm’s website example, to a $45,000 car, with $8,500 p.a. running costs, $8,500 p.a. FBT taxable value, and a 4 year term novated lease rental of $8,440 p.a. + GST.
The employee paid the $8,500 running costs as a non tax deductible employee recipients payment in both the novated and associate lease examples, to offset the $8,500 annual FBT taxable value. The employee earned $150k p.a. and the associate partner already earned $25k p.a. but wasn’t employed by the employee’s employer.
The main issues with this accountancy firm’s website examples are, that firstly, the associate leased car is unencumbered, and thus obviously, no car loan repayments comparisons can be applicable, and secondly, that a one year salary sacrifice comparison between associate and novated leases cannot be used, as the car cost the associate $45,000 in cash, and the employee no deposit novated lease option only has a $16,875 GST inclusive residual in 4 year’s time.
As Salary Packaging Gurus blog readers can appreciate, if just one year comparison figures are used, this must result in an incorrect overall 4 year lease term, novated lease versus associate lease comparison, as $16,875 4 years in arrears, and $45,000 four years in advance are obviously completely different numbers.
The novated lease rental ex GST is a $5,149 post tax cost, after the $8,440 ex GST lease rental pre tax salary sacrifice, plus the $8,500 post tax employee paid running costs, equals a $13,649 post tax all up cost per year.
The $9,284 GST inclusive novated lease rental used as the associate lease rental to be paid to the associate, had an after tax salary sacrifice cost of $5,663 plus the $8,500 post tax employee paid running costs recipients payment, or a $14,163 employee post tax cost, minus the associate partner’s $8,935 after tax paid lease rental amount retained, equalled an annual joint post tax associate lease cost of $5,228.
$13,649 post tax novated lease cost – minus the $5,228 joint associate lease cost, showed that the associate lease was a whopping $8,421 per year cheaper than the novated lease. If only this was actually the case.
$13,649 X 4 years + the $16,875 GST inclusive residual in 4 year’s time equals $71,471
$45,000 initial car cost plus 4 years X $5,228 joint associate lease post tax cost equals $65,912.. The actual associate lease without associate recipients payment, annual average gain, is therefore only $1,390, plus for accuracy’s sake, a small allowance for lost income from the initial $45,000 cash outlaid could be added.
Even so, the quoted $8,421 annual gain with a standard associate lease compared to the novated lease cost, was wildly overstated, when the resultant effects of the total costs of the 4 year lease terms, of both lease arrangements, are taken into consideration, as must always occur, but unfortunately didn’t, on the accountancy firm’s website.
The accountancy firm’s website also showed the GST inclusive novated lease rental as the equivalent annual car loan repayment cost , if the car wasn’t to be pre tax salary sacrificed via a novated or an associate lease. The logic behind this situation is hard to follow, when there obviously cannot be any car loan repayments at all, as the unencumbered car was bought with $45,000 cash, and was thus debt free.
The employee’s annual drop in take home pay is $11,533, after the all pre tax salary sacrifice, minus the $9,822 per annum the associate clears after paying the $8,500 running costs and $584 tax.
The resultant joint post tax cost between the employee and the associate reduces to $1,711 per year, and thus there is a 4 year joint total post tax Salary Packaging Gurus associate lease cost of $1,711 X 4 years + the $45,000 initial car cost or $51,844.
The Salary Packaging Gurus unique associate lease product therefore saves $19,627 over 4 years, and $4,906 annually compared to the novated lease costs.
The Salary Packaging Gurus unique associate lease structure with associate recipients payment of running costs, is also $14,068 cheaper over 4 years, and $3,517 p.a. cheaper, compared to the accountancy firm’s amended associate lease cost.
This occurs because the standard associate lease structure as used by the accountancy firm, cannot have the overall cost reduced by the use of the associate’s recipients payment, which is the case with the Salary packaging Gurus associate lease product.
Salary Packaging Gurus along with a major Council client, has received an ATO private ruling confirming that the running costs paid by the associate, constitutes recipients payment, but only if the Salary Packaging Gurus unique associate lease documentation is used.
The authorisation number is 1051225251111
Contact Salary Packaging Gurus on 0402 944713 to get a quote to have this firm’s unique associate lease product, added to your pre existing or replacement car or cars, and thus potentially save you $1,000’s per year.