Did you know you can have your business pay for your car? Did you know with the right structure in place that you can have a double deduction for your car expenses?
If not, you’re not alone. You may be missing out on extra tax benefits without realising it, but we’re here to help you get the best bang for your buck.
When it comes to cars the rules are not straightforward with tax and how best to claim them. If you are looking to purchase a new car and are in business, it is always best to get some expert advice around the best way to structure it.
Depending on your circumstances, the difference in the net cost of the car and its ownership can be quite substantial. You can get a tax deduction for a car but, it also possible to get a double deduction for a car.
How you may ask? Two words: associate lease.
But what makes this so magical? Through the use of an associate lease, the lease amount being charged to your business by an associate can include the running costs of the car.
Essentially, the associate who is paying for the running costs of the car can use this as the employee contribution towards the employer/business.
Usually, this amount would have to come out of the employee’s salary. Here is how the numbers play out based on a $50,000 car paid off over 5 years:
| Packaging Type | FULL LEASE | ASSOCIATE | NONE |
| Gross Wages | 120,000 | 120,000 | 120,000 |
| Less: | |||
| Pre-Tax Contribution | 4,185 | 10,202 | |
| Taxable Wages | 115,815 | 109,798 | 120,000 |
| Tax Payable | 30,423 | 28,164 | 31,867 |
| After Tax Income | 85,392 | 81,634 | 88,133 |
| Less: | |||
| Lease Payments | 8,404 | ||
| Running Costs | 7,200 | ||
| Employee Contribution | 10,529 | 3,418 | |
| Income Remaining | 74,863 | 78,216 | 72,529 |
As you can see, a regular novated salary sacrifice arrangement leads to an overall improvement in outcome, but an associate lease adds a further $3,353 in tax savings. For small business owners this can make a big difference.
How do you set up an associate lease?
There are 3 parties to an associate lease
The employer.
The employer agrees with the employee to enter into an associate lease salary sacrifice arrangement. In turn, the employer enters into a lease with the associate and makes the regular payments for the vehicle.
The associate
The associate enters into the lease arrangement with the employer; they cover any finance costs and pay for running costs of the car.
The employee
The employee enters into an associate lease salary sacrifice agreement with the employer and receives use of the car.
For small business owners, your employer is most likely going to be your trading company.
Who can be your associate?
Your associate can be your significant other or, for small business owners, it could be a separate entity from the one that employs you.
If you want to know more about associate leases and the savings you can achieve, contact the small business tax experts at PCR Accounting & Advisory.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.
