Associate Lease Benefit Profile

Transcription

1 Associate Lease Benefit Profile Introduction In an Associate Lease Benefit, the Associate leases their car to the Employer who then makes it available to the Employee as a Car Fringe Benefit. The car may be driven by the Employee or their Associate and is not required to travel any business related kilometres. An Associate Lease Agreement requires the Employee to nominate an Associate. The Associate is typically the Employee s spouse, but can also include partner, relative, family company or family trust. The Associate earns income from the arrangement in the form of the lease payments. Lease payments are determined at arms length and are paid to the Associate from the Employee s Salary Package. Since the Associate Lease is an operating lease, it requires no principal repayment. Benefits of Packaging An Associate Lease allows the Employee to use the Associate s vehicle as a benefit and affords the Associate the opportunity to convert an asset that does not earn income into one that does. The Associate earns lease payments from the Employer (who in turn makes the vehicle available to the Employee). The Associate shows both the income and deductions in their tax return. The major deductions would relate to eligibility for depreciation and any finance charges that the Associate may have attaching to the vehicle (for example interest on a loan). The Employee receives a Fuel Card from the selected supplier and uses this card to pay for fuel and oil. The sum of these and other operating expenses are charged to the Employee s Salary Package. Where GST is payable on the car running costs and the Employer is eligible to claim an Input Tax Credit (ITC), the ITC may be passed on to the Employee. This means that the Employee may not pay the GST on these expenses. Processing Overview Associate Lease Step 1 - Employee Arranges Associate Lease and pays for Running Costs Step 2 Employee Submits Benefit Application Form Step 3 - SmartSalary Arranges Regular Salary Deductions Step 4 - SmartSalary Payment to Associate & Reimbursement to Employee for Running Costs after Submission of Claim Form Associate Lease Benefit Profile Page 1 of 7

2 Benefit Requirements The Employee must consult a financial adviser prior to establishing this benefit. The following companies have been recognised as having extensive experience in dealing with Associate Leases: Name of Financial Planning Company Fees for Consultation to Setup One Associate Lease for New Client Fees for Consultation to Renew an Existing Associate Lease Fees for existing client s consultation to create a new lease Sheridan & Associates (ACT) $ (incl GST) $ (incl GST) $ (incl GST) Telephone Number Fees for Consultation to Setup Two Associate Leases for New Client Fees for Consultation to Renew Two Existing Associate Leases Fees for Existing Client s Consultation to Create Two New Leases $ (incl GST) $ (incl GST) $ (incl GST) Note: The Employer pays the GST component of the benefits that are salary packaged. Associate Requirements The Associate must meet the following requirements to be eligible for an Associate Lease Agreement. The Associate must have an Australian Business Number (ABN). The Associate can register for an ABN by either calling the Australian Taxation Office (ATO) or registering online. The contact details are provided below: State ATO ABN Enquiries Online ABN Registration ALL In order to simplify this benefit, it is a SmartSalary requirement that the Associate must NOT be registered for GST. Since registered businesses with revenues in excess of $75,000 per annum must be registered for GST, this means that the Associate s annual income must be less than $75,000. The Associate must own or lease the car. The car can be owned outright or have finance attached. The car is typically registered in the Employee s name. Car Requirements The car must meet the following requirements: The vehicle must qualify as a car for FBT purposes. The ATO defines the following types of vehicles (including four-wheel-drive vehicles) as cars: motor cars, station wagons, panel vans and utilities; all other goods-carrying vehicles with a designed carrying capacity of less than one tonne; all other passenger-carrying vehicles with a designed carrying capacity of fewer than nine occupants. Associate Lease Benefit Profile Page 2 of 7

3 Fuel Cards SmartSalary will supply the fuel cards for all Associate Leases. You are able to select from one or more of the following fuel cards: Fuel Card Fees (incl. GST) Fuel Pricing Spending Limit Caltex StarCard $0.38 per transaction Pump Price $1,500 per month BP Plus Card $2.20 per month Pump Price $1,000 per transaction The Caltex StarCard is accepted at all Caltex, Ampol and Woolworths/Safeway Plus Petrol outlets nationally. Benefit Application Process A 5-step process needs to be followed when applying for an Associate Lease Benefit. Step Description Step 1 Nominate an Associate and select a car (the Associate purchases the car if required) Step 2 Contact Financial Adviser to calculate Lease payments and complete the Associate Lease Application and Agreement Forms that are ed back to you Step 3 Obtain Signatures from The Associate and the Employer enter into an Associate Lease Agreement. Step 4 Step 5 Fax or scan/ back to Adviser the following: - Application for Salary Packaging Form (if required) 2 - Associate Lease Benefit Application Form 2 - Associate Lease Agreement 2 documentation That s it! SmartSalary does the rest by arranging Salary Deductions; setting up the regular lease payments to the Associate and ordering the Fuel Card. SmartSalary sends the Employee a Package Confirmation Report verifying all details of their Salary Package. 2 All required benefit forms are available by logging on to the SmartSalary website Associate Lease Benefit Profile Page 3 of 7

4 Tax Information Statutory Percentage Under FBT legislation, a percentage of the FBT base value of the vehicle (called the statutory percentage) is subject to Fringe Benefits Tax (FBT). The statutory percentage ranges changed May 2011 where they ranged from Distance travelled during the FBT year (1 April 31 March) Existing contracts Statutory rate (multiplied by the FBT Base cost of the car to determine a person s car fringe benefit) New contracts entered into after 7:30pm (AEST) on 10 May 2011 From 10 May 2011 From 1 April 2012 From 1 April 2013 From 1 April ,000 km ,000 25,000 km ,000 40,000 km More than 40,000 km FBT & ECM The liability for FBT can be met in one of the following ways: FBT Payable Employee Contribution Method: This method requires you to make an after tax contribution to your employer equivalent to the taxable value of the vehicle. When you make such a payment, the ATO accepts that the taxable value of the vehicle is reduced to zero and therefore no FBT is payable (assuming your nominated KM bracket is met). In effect, this method replaces the FBT rate of 46.5% with your own marginal rate of tax. The after tax contribution collected will then be used to fund lease and running costs of your vehicle. The Contribution Method is suitable for all employees, regardless of their income. Please refer to the Savings Example on page 6 for more information. FBT Method: Under this method, fringe benefits tax will be deducted from your pre-tax salary as per the below formula. This method is not suitable for those who are not in the top marginal tax bracket. The formula for calculating FBT payable in any given year is: FBT = TaxableValue %...(1) Where the Taxable Value is given by: TaxableValue = A B C...(2) D A = FBT base cost of vehicle B = Statutory Fraction as per table above C = Number of days in FBT year where car was available D = Number of days in FBT year (365 or 366) Associate Lease Benefit Profile Page 4 of 7

5 Reportable Fringe Benefits Amount (RFBA) The Associate Lease Benefit may give rise to a Reportable Fringe Benefit Amount when the taxable value of the benefit is greater than zero. The RFBA is calculated using the following formula: Reportable Fringe Benefits Amount = Benefit Taxable Value * RFBA Gross-Up Rate (1.8692) This amount will be reported to the Employer after the end of each FBT Year. The Employer may then include this amount on an Employee s Payment Summary. Goods and Services Tax (GST) Running costs (except registration) will normally attract GST. The Employer may be eligible to claim an Input Tax Credit for the amount of GST charged. This credit may then be passed on to the Employee. In this way, the Employee may not pay any GST for the running costs. Income Tax The Associate may be entitled to an Income Tax Deduction for depreciation and any interest charged on finance obtained to purchase the car. For further information, please seek advice from a qualified accountant. SmartSalary staff are not authorised or licensed to provide taxation information in addition to that stated in this document. Disclaimers The details outlined in this benefit profile are subject to the provisions of an Employee s employment contract and the Employer s policy regarding Salary Packaging. This Benefit Profile is based on taxation and other legislation that is current. The profile contains general information only that is based on the continuance of current legislation and tax rulings and their interpretation. The information in this Benefit Profile is not intended as professional financial advice. Associate Lease Benefit Profile Page 5 of 7

6 Savings Example In this example, John is the Employee. After receiving independent financial advice, John decides it would be beneficial to setup an Associate Lease Benefit with his wife Jane as the Associate. John has chosen to use the Employee Contribution Method to manage the FBT Liability. Jane purchased the car one year ago using her savings. Associate Lease Assumptions John s Salary (Gross) $ 45,000 Jane s Income (Gross) $ 6,000 FBT Base Value of the Car $ 20,000 Estimated Annual Distanced To Be Travelled Statutory Percentage 20 % 20,000 km Employee Contribution Amount $ 4,000 Annual Lease Payments $ 5,000 Annual Running Costs $ 4,000 Annual Depreciation Deduction $ 3,000 Assumption Information and Calculations Employee Contribution Amount The Employee Contribution Amount is equal to the Base Taxable Value of the Car Fringe Benefit and is calculated using the following formula: Employee Contribution Amount = FBT Base Value * Statutory Percentage = $ 20,000 * 20% = $ 4,000 Annual Lease Payments The Annual Lease amount is made up of two components: interest and depreciation. A financial adviser can assist in calculating the lease payment but reference should be made to market interest rates and standard depreciation terms (generally around 15% pa on a straight line basis). Lease payments should be set in order to have the Associate make an acceptable return on capital on their investment in the car. It is expected that the Associate will make a taxable profit in each year, which the lease agreement is operational. Annual Running Costs The Annual Running Costs of a car include registration, insurance, maintenance and fuel. The Employee advises SmartSalary of the budgeted amounts for each item and these are added to calculate the estimated Annual Running Cost. Annual Running Costs = $ 4,000 An estimate of vehicle running costs is provided by the NRMA at Annual Depreciation Deduction The Annual Depreciation Deduction is calculated using the following formula: Annual Depreciation Deduction = Cost Price * Depreciation Rate = $ 20,000 * 15% = $ 3,000 It is important that the Associate consult with their financial adviser to ensure that depreciation is correctly calculated as the actual amount claimable can be influenced by how long the car has been held and whether previous depreciation claims have been made. Associate Lease Benefit Profile Page 6 of 7

7 Savings Example (continued) The following compares the position of John and Jane with and without the Associate Lease in place. This example is indicative only and it is important that Employees and Associates consult their financial advisor to ensure that other income and government benefits are correctly treated. Without an Associate Lease Benefit Without the Associate Lease, Jane pays the Running Costs of the car from her after-tax income. Employee Position Associate Position Gross Annual Salary $45, $6, PAYG Tax + Medicare Levy $10, $0.00 Net Salary $34, $6, Car Running Costs (incl. GST) $0.00 $4, Disposable Income is: $34, $2, With an Associate Lease Benefit With the Associate Lease, John pays for the Lease Payments and Running Costs using a combination of pre-tax and after-tax income. While this reduces John s disposable income, Jane receives the Lease Payments and claims a deduction for depreciation. Overall Jane s disposable income rises. Employee Position Associate Position Gross Annual Salary $45, $6, Lease Income $0.00 $5, Pre-Tax Lease Deduction $1, $0.00 Pre-Tax Running Cost Deduction $4, $0.00 GST on Contribution $ $0.00 Gross Salary After Deductions $39, $11, Depreciation Tax Deduction $0.00 $3, PAYG Tax + Medicare Levy $ $ Net Salary $31, $10, After-Tax Lease Deduction (employee contribution) $4, $0.00 Disposable Income is: $27, $10, Total Benefit of the Associate Lease Employee Position Associate Position Effect of Lease on Disposable Income -$7, $8, Total Increase in Disposable Income $ The overall benefit is the difference between John s (the Employee) reduction and Jane s (the Associate) increase in disposable income. Associate Lease Benefit Profile Page 7 of 7