Tax Planning Strategy 155 | Salary Packaging Associated Leases

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 vehicle’s operating costs from their pre-tax salary as a salary sacrifice arrangement. 

The tax savings with salary packaging an associated lease are two-fold. Firstly, salary packaging a car saves the standard $2,700 pa in tax due to the concessional valuation rules that apply to car fringe benefits. The second more substantial tax savings are achieved as the employee’s salary package is reduced by the lease payments that are ultimately included in the assessable income of the spouse (who is usually taxed at a much lower marginal tax rate than the employee).