Fully maintained associate lease
A fully maintained associate lease is an agreement where an associate of the employee (typically spouse or partner), leases a fully maintained car to the employee's employer. Under the fully maintained operating lease, the associate agrees to incur and pay for the vehicles' running costs (e.g. fuel, repairs, insurance, and registration). The employer then provides the car to the employee via a pre-tax salary sacrifice arrangement. That is, the employee pays for most of the vehicle's costs from their pre-tax salary as a salary sacrifice arrangement.
The tax savings with salary packaging a fully maintained associate lease are three-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 typically taxed at a much lower marginal tax rate than the employee). Thirdly, the vehicle running costs paid by the associate (fuel, repairs, insurance, and registration) are treated as a 'recipient payment' under the FBT Act and reduce the FBT payable by the employer.
Implementation Process and Costs
- The employees associate (their spouse, partners, children, parents, associate's company, or trust) purchases a car using their cash reserves or finances the purchase (either added to their home loan or as a hire purchase arrangement).
- The spouse then leases the car to the employee's employer under an arms-length fully maintained operating lease agreement.
- The employer then provides the same car back to the employee as a car fringe benefit.
- The spouse includes the lease payments as income in their tax return and claims deductions for depreciation, finance costs, fuel, repairs, insurance and registration.
- The lease payments received by the spouse can affect their Centrelink Family Tax Benefit Part A & B entitlements.
- The employee salary sacrifices the GST exclusive amount of car expenses (including the lease payments and running cost paid by the spouse), and any FBT that is payable by the employer concerning the car fringe benefit.
- The FBT payable by the employer is minimised due to the recipient's payments made by the associate (i.e. fuel, repairs, insurance and registration).
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