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Associate Leases: A Guide for Employers and Employees

An Associate Lease is one of the ways employers can provide benefits such as a car to their employees, reducing the employees taxable income. Through this 'salary packaging', an employee can agree to forfeit part of their salary (thus the coined term 'salary sacrifice') in exchange for certain non-cash benefits.

Associate Lease Agreement
However convoluted it may seem on the surface, an Associate Lease is simply an arrangement in which the employee, through his or her associate, leases the employer his or her existing car

What is an Associate Lease?

It is a lease arrangement whereby an ‘associate’ of the employee (eg a partner or spouse) takes ownership of the motor vehicle and effectively leases it back to the employer. The motor vehicle is then provided to the employee on a fully maintained basis.

Once the lease is in place, the motor vehicle is recognised as an employer provided vehicle for both the purposes of the Income Tax Assessment Act and the Fringe Benefits Assessment Act.

The Benefits

An associate lease arrangement provides three key benefits:-

  • Lease payments are paid as income to the associate who would generally be in a lower tax bracket than the employee.
  • All of the running and maintenance costs are paid for and claimed as a deductable expense by the employer.
  • The employee forgoes income in exchange for car benefits thereby reducing tax liability.

Below shows how an associate lease works:

Associate Lease Infographic

 

Under this type of lease, the associate is liable to pay taxes on the lease payments received. However, if the associate happens to be someone who has no or quite low income (e.g. an adult child attending university), then income tax savings can still be quite considerable. After all, the marginal tax rate would still be lower than the rate that the employee would have to pay had the amount been on his or her assessable income. The depreciation allowance for the first year also leads to further reduction in the assessable income.

The difference between an associate and novated lease

An associate lease is a salary sacrifice arrangement that is very similar to a novated lease arrangement.  However, in an associate lease, the employee's associate, is the owner and the lessor of the vehicle, leased to the employer, and provided to the employee. Under a novated lease, a finance company is the lessor.

However convoluted it may seem on the surface, an Associate Lease is simply an arrangement in which the employee, through his or her associate, leases the employer his or her existing car.more information

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