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  1. #21
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    Thanks ladies, if it's too hard to understand it's ok, I didn't realize they were so uncommon. I appreciate you all taking the time to read and answer where you can.

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    turquoisecoast  (04-05-2017)

  3. #22
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    Quote Originally Posted by nattie84 View Post
    I have never seen it either.. I am a CA and own my own firm.
    Same! Well, CPA. I think it's very uncommon for people to have this arrangement. I don't see the benefit of it over a novated lease, unless you just want to use your existing car instead of getting a new car that's tied to your employment.

  4. #23
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    Quote Originally Posted by nicole83 View Post
    Ah see I thought I had to use that schedule as it was done through a financial advisor. The salary sacrificing company made us have the schedules drawn up and all parties sign to it.

    So basically we have two deductions come out of dh's pay. Pre-tax which I thought was for the lease/rent repayments then a post-tax deduction which = all the other expenses mentioned above. The salary sacrificing company keeps funds in an account for the other expenses then we draw on those funds when needed e.g. Rego is due. Fuel is automatically managed with them through the fuel card. So that just leaves me with the lease payments = rent part that I need to declare on my tax as income. But shouldn't the depreciation virtually cancel it out? Otherwise if it ends up making my income higher then I end up paying tax - right? I do have othe business expenses to claim like printer, stationary etc. but those amounts are relatively small.
    The depreciation cancelling out the rent/income isn't necessarily going to work in every scenario, and if the lease payments are fixed then yes, you will eventually have to pay tax. The lease has to be at market value (arms length). I can't see how $5000 a year for a $20,000 car is market value lease arrangement.. but anyhoo...

    Sorry to say, you might not have gotten a great arrangement put into place but that's an issue you need to discuss with a financial advisor and/or the company your husband works for. As for the tax implications, even without having experience with associate leases, I can tell you that yes you will have to pay tax on the profit.

    Also, while they did give you a schedule for depreciation, I can't see why you wouldn't be able to claim a different rate of depreciation. In fact, their depreciation calculations are wrong because they used 25% in the first year and 18.75% in the following years (this is an outdated rate for motor vehicle depreciation, no one uses it anymore). So I would be claiming 25% in each year. After claiming some other small business expenses you should be breaking even at least for the first 2-3 years of this arrangement.

  5. #24
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    Another CA who just had to google 'associated lease'! Seems to be an arrangement usually used where there is a main income earner trying to shift some of their income to stay at home or low income spouse. Do you have any other taxable income besides the lease payments? (employment, investment). If not there may not be an issue with income exceeding expenses anyway if your overall taxable income is still below the tax free threshold ($18,200 for 2017 FY). If your income is above this then yes there could be tax to pay but presumably this would be at a lower marginal tax rate than your husband would be paying tax at so still a saving overall.

  6. #25
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    ok i've googled and understand now. so the lower income earning spouse sets themselves up with an abn and is the owner of the vehicle. the high income earning partner then enters into a sal sac arrangement to lease the vehicle, the lease payments coming out of pre tax $$. the lessor then declares the vehicle rent as income, and is able to claim the associated running costs - depreciation. i would've thought all running costs could be claimed however, as they've been incurred in generating that income. so as witherwings pointed out, insurance, rego, r&m etc could all be claimed. plus interest on a loan if there's any financing over the vehicle.

    i actually had no idea associated leases existed. it sounds legit but seems too good to be true? like why aren't we all doing this? does your husband use his car for work?

  7. #26
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    Quote Originally Posted by Cat13 View Post
    Do you have any other taxable income besides the lease payments? (employment, investment). If not there may not be an issue with income exceeding expenses anyway if your overall taxable income is still below the tax free threshold ($18,200 for 2017 FY). If your income is above this then yes there could be tax to pay but presumably this would be at a lower marginal tax rate than your husband would be paying tax at so still a saving overall.
    Good point!

  8. #27
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    Quote Originally Posted by witherwings View Post
    The depreciation cancelling out the rent/income isn't necessarily going to work in every scenario, and if the lease payments are fixed then yes, you will eventually have to pay tax. The lease has to be at market value (arms length). I can't see how $5000 a year for a $20,000 car is market value lease arrangement.. but anyhoo...

    Sorry to say, you might not have gotten a great arrangement put into place but that's an issue you need to discuss with a financial advisor and/or the company your husband works for. As for the tax implications, even without having experience with associate leases, I can tell you that yes you will have to pay tax on the profit.

    Also, while they did give you a schedule for depreciation, I can't see why you wouldn't be able to claim a different rate of depreciation. In fact, their depreciation calculations are wrong because they used 25% in the first year and 18.75% in the following years (this is an outdated rate for motor vehicle depreciation, no one uses it anymore). So I would be claiming 25% in each year. After claiming some other small business expenses you should be breaking even at least for the first 2-3 years of this arrangement.
    Thank you so much, this information is exactly what I needed to know. I can't thank you enough. It was so hard to find a financial advisor to write up the contracts for the associated lease so I'm not surprised the depreciation is wrong.

    I'm certainly no expert in this area, but wouldn't it be in our best interests to continue with the associated lease and at least some of the "rent" is earned as pre-tax $$$ even if I do have to pay a little tax at the end? Considering I have other tax deductions to include like printer, electricity (for the office), use of mobile phone (for the "business") etc etc.

  9. #28
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    Quote Originally Posted by turquoisecoast View Post
    ok i've googled and understand now. so the lower income earning spouse sets themselves up with an abn and is the owner of the vehicle. the high income earning partner then enters into a sal sac arrangement to lease the vehicle, the lease payments coming out of pre tax $$. the lessor then declares the vehicle rent as income, and is able to claim the associated running costs - depreciation. i would've thought all running costs could be claimed however, as they've been incurred in generating that income. so as witherwings pointed out, insurance, rego, r&m etc could all be claimed. plus interest on a loan if there's any financing over the vehicle.

    i actually had no idea associated leases existed. it sounds legit but seems too good to be true? like why aren't we all doing this? does your husband use his car for work?
    Yep this is all correct. When dh was with company A this was how we did it. It was super straight forward - all money was paid to me and then I claimed all expenses at tax time - it was would cancel each other out. Now dh is with company b it's a little confusing because they keep all the funds aside for these expenses and they take two amounts from his pay pre-tax contribution and post-tax. I wasn't sure if I could still claim all the expenses so didn't last year. Thankfully I had enough other expenses to claim to avoid paying tax. But this is what I'm concerned about this year if I don't claim all those expenses like rego etc I may end up owing tax.

    Yes I have a normal job earning income so need to ensure the income and expenses of this cancel each other out as much as possible.

    Why isn't everyone doing it? Good question - well you need to have an employer willing to participate in this arrangement and thankfully both of dh's were.

    Dh doesn't use the vehicles for work purpose no. He is effectively "leasing" two vehicle from me for whatever purposes he wants.

  10. #29
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    Quote Originally Posted by nicole83 View Post
    I'm certainly no expert in this area, but wouldn't it be in our best interests to continue with the associated lease and at least some of the "rent" is earned as pre-tax $$$ even if I do have to pay a little tax at the end? Considering I have other tax deductions to include like printer, electricity (for the office), use of mobile phone (for the "business") etc etc.
    Yes if you're on a lower tax bracket to your partner then you are better off with this arrangement even if you have to pay some small amount of tax, and we're talking about a really small amount of profit anyway, especially if you're using a higher depreciation rate.

    It's a funny thing about tax legislation... they have anti-avoidance provisions but then they allow schemes like this which have no other purpose other than reducing tax.

  11. #30
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    @witherwings - my last question and I'll stop bothering you but since there are two deductions coming out of dh pay - one being pre tax and the other post tax, does that mean I can no longer claim the rego extra because that's a post tax deduction?


 

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