Associate Lease Agreement, Salary Sacrifice, Salary Packaging

Associate Leases: A Guide for Employers and Employees

You have probably heard of salary packaging or salary sacrifice, a flexible remuneration scheme where employees agree to forgo part of their salary (thus the term salary sacrifice) in exchange for certain non-cash benefits. An associate lease is one of the ways through which employers can provide their employees with car benefits under a salary packaging agreement. With an associate lease in place an employee can reduce their taxable income in exchange for a motor vehicle.

What is an Associate Lease?

An Associate Lease is a lease rental arrangement whereby an Associate of the employee (eg partner, spouse) owns the motor vehicle and leases it 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 motor vehicle for both the purposes of the Income Tax Assessment Act and the Fringe Benefits Assessment Act.

The Benefits of Associate Leases

The Associate leases arrangement provides two key benefits :
i) Lease payments are paid as income to the associate who would generally be in a lower tax bracket than the employee.
ii) Additionally all of the running and maintenance costs are paid for and claimed as a deductable expense by the employer.
iii) Employee forgoes income in exchange for car benefits thereby reducing tax liability 

An associate lease is thus a salary sacrifice arrangement that is very similar to a novated lease agreement. However, in an associate lease, the employee's associate is the owner and thus the lessor of the vehicle provided by the employer to the employee whereas, in 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 associate leases the employer his or her existing car so that the employer can provide him or her with car fringe benefits, which he or she pays for by sacrificing part of his or her future salary.

Under an Associate Lease Agreement, the associate is liable to pay taxes on the lease payments received. However, if the associate in the agreement happens to be someone who has no or quite low income (e.g. adult child attending university), then income tax savings can still be 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 associate's assessable income.

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Tenants in common agreement allows for co ownership of property

Tenants in common

The soaring price of real estate makes getting into the property market hard. The possibility of pooling resources with friends and family to achieve this is appealing.

The question is…How?

The answer could be to become ‘tenants in common’.

Tenants in common is a type of joint ownership of property. This type of co ownership is most suited to investment type properties where each ‘tenant in common’ is able to deal with their interest individually. It is vital to all involved that the purchase is documented and regulated by a tenants in common or co-ownership agreement which can outline every aspect of the purchase.

There can be as many individuals as you like holding a share of the title to a single piece of real estate. The shares in this type of agreement do not have to be equal meaning you can have multiple ‘owners’ with varying shares in the property. These shares are generally decided at the time of purchase, but can be altered at any time, provide all parties agree to the change.

Each shareholder is able to leave their share of ownership in their will to anyone they choose and the other tenants in common have no legal claim to it. Each tenant in common has the right to deal with their share of the property separate from the others. The share of a tenant in common is known as an “undivided” share.

An initial outlay or ‘capital’ is needed and then an amont (stated in the agreement) is paid into a ‘revolving’ fund on a pre determined schedule (ie, weekly, fortnightly,monthly). This fund covers all expenses incurred by the property and if these exceed available funds then each party must put in extra money.

What if I want to sell my share?

After an amount of time set out in the agreement, a party can sell their shares. They can be sold to anyone but must be offered to the other parties in the agreement first (known as the ‘first right of refusal’). If the sale is accepted then the selling party will be responsible for the cost of valuation and all of the other costs incurred.

These are the basics of becoming ‘tenants in common’. The finer details are all covered in your ‘tenants in common’ agreement.

It is a viable and sound way to enter the property market without having to find all the money yourself. Just do it right at the beginning and you can be on the property market ladder sooner than you might think.As long as you have made a ‘Tenants in Common’ agreement and all parties have signed and agreed then there can be no arguments in the future.