A great perk with instant tax benefits
What is an associate lease?
Similar to a novated lease, employees can save tax when they package their car at home as an associate lease.
By packaging their car, they can pay for part of the car’s lease if they have one and or the running costs such as fuel, maintenance, registration and insurance with pre-tax salary. Employees could save thousands of dollars in tax by allowing them access to this benefit, plus the running costs are GST free.
In addition to employee saving tax, if the associate earns under the tax threshold, they can earn income from leasing their car to the employee (just like a lease finance company). If the associate is a spouse, this structure has the potential for them to earn income from this arrangement.
In a nutshell, an associate lease is where your associate (partner, spouse, child 18+, family trust or similar) owns a motor vehicle outright, or even under finance, and enters into an arrangement to rent that vehicle to your employer who then makes the vehicle available to you as part of your employment. Your employer then pays your associate the rental costs including running costs: petrol, maintenance, tyres and so forth.
How it works:
- The costs are deducted from your pre-tax salary (so you don’t pay tax on the amount – this is the saving) and paid to your employer, who then pays your associate
- The money stays in the family, but the running costs are tax-free
- Your associate will record the income on their tax return, but also be able to claim the running costs and depreciation as income tax deductions
- Depending on the relative differences in salary between you and your associate, this can be a great way to save on existing family vehicles
Frequently asked questions
Yes. In fact, by having both you can increase the remuneration of your salary by a significant amount of money.
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.
20% of the car base FBT value is assessed for car FBT.
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.
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.
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.
No, but the associate must have an ABN and an individual (not joint) bank account.
Yes, the associate will need to have an ABN. You can talk with your associate’s tax advisor to help apply for one if they don’t already have an ABN.
Yes. The odometer reading at the start date of the associate lease is required. An odometer reading is also required 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.
No. The associate in an associate lease arrangement claims 100% of any car cost loan interest, plus depreciation on non-luxury cars.
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.
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.
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.
Traffic fines, parking fines, road tolls, bridge tolls or driver’s licence fees.