Associate Leasing

An Associate Lease is an arrangement where an associate of the employee (eg: spouse or family member) owns the vehicle and subsequently leases the vehicle to the employer who then provides the vehicle to the employee on a fully maintained basis. The vehicle must be registered in the associate’s name. If it is currently registered in the name of the employee, the registration must be transferred.

The vehicle is then recognised as an employer provided vehicle for the purposes of the Income Tax Assessment Act and the FBT Act. This has been confirmed by the Commissioner of Taxation via Ruling IT 2509.

In the event of the employee leaving the employer the obligation to pay the lease rentals under the Associate lease ceases. The employee or the Associate is then liable for all future running costs from the date of leaving the employer.

Where an Associate Lease is used lease rentals are assessable income to the employee's associate who can claim interest and depreciation expenses as deductions against this taxable income. A depreciation schedule should be attached to Associate Lease document to assist the associate in this area.

In the event of a subsequent sale, if the sale price exceeds the depreciated value of the vehicle, Capital Gains Tax may be applicable. There is no minimum value for the vehicle and it can be either an existing new or used vehicle and may be already financed or owned unencumbered.

The payments for the vehicle made by the employer to the associate of the employee will be determined on a reasonable basis as to reflect justifiable deductions by the associate for owning the vehicle. This is not a form of finance lease. Generally an amount of 30% of the vehicle value is used as the annual lease rental. The lease rentals paid by the employer for the use of the vehicle are in no way linked to any existing loan or finance payments (either in timing or amount).

It is important to note that running expenses of the vehicle cannot be claimed as a tax deduction by the associate, as the associate is not paying for the running expenses. These are packaged, and as such, paid by the employer. The only expenses claimable by the associate are the depreciation and any interest charges if applicable. The employee cannot claim for any expenses at all.