Salary Sacrifice Vehicle Information for Associate Leases

SALARY SACRIFICE VEHICLE INFORMATION FOR ASSOCIATE LEASES

This package is to be read in conjunction with the Salary Sacrifice Guidelines & Conditions. The University of South Australia will advise employees of updates and changes to the Guidelines & Conditions via the HR web page. It is the responsibility of the employee to ensure that amendments are read and understood.

An Associate lease will need to be set up by a Financial Advisor or Accountant. The following information is to be used as a general guide only. A directory of financial planners is available from the Financial Planning Association at http://www.fpa.asn.au/

An Associate lease is a lease rental agreement where an associate of the employee (eg spouse, partner or family member) owns the vehicle and leases it to the University of South Australia (UniSA). The vehicle is then provided to the employee on a fully maintained basis. Ownership of the vehicle remains with the Associate throughout the lease. When the lease is in place, the vehicle is recognised as a University provided vehicle for the purposes of the Income Tax Assessment Act and the Fringe Benefits Assessment Act. Relevant Terms Australian Business Number (ABN) - is a single identifier for all business dealings with the tax office and for dealings with other government departments and agencies. Fringe Benefits - refers to benefits provided to employees in addition to their salary or wages (e.g. motor vehicles, laptops). Fringe Benefits Tax (FBT) - is a tax on benefits provided by an employer to their employees as a result of their employment. The tax is payable by the employer to the Australian Taxation Office. FBT Rate - is currently 46.5% (April 05) and is based on the top marginal rate including the Medicare levy. FBT Year - 1 April to 31 March. Gross(ed) Up - The objective of grossing up is to assess what the employee would have paid for the benefit had it not been salary sacrificed. The grossed up figure is then used to calculate the FBT. GST - refers to Goods and Services Tax. This is a tax levied by the Australian Taxation Office for the supply of services or goods. Input Tax Credits - refers to the reimbursement of GST to a registered business. Marginal Tax Rate - is the tax rate payable on an employee’s gross salary. Pay As You Go (PAYG) - tax deducted from salary and wage earners each pay period. This is the system for the collection and payment of income tax by the Australian Taxation Office. Salary Sacrifice - are payments made for benefits before tax and include items that may incur FBT. Salary Sacrifice Agreement (SSA) - a written arrangement that acknowledges salary sacrifice terms and conditions between the University and employee. Statement by a supplier – a written statement to an enterprise (payer) providing a reason for not quoting an Australian Business Number (ABN). Taxable Benefit - is a benefit that attracts FBT. Taxable Value - is the taxable benefit received by an employee less any after tax contribution the employee has made towards the benefit.

1 Salary Sacrifice Arrangements

Under a salary sacrifice agreement the vehicle lease costs and fringe benefits tax (FBT) are salary sacrificed from the employee’s fortnightly salary. The lease payment includes all vehicle- running costs (fuel, insurance, registration, maintenance etc.) and is made into the Associates bank account. UniSA retains the FBT for disbursement to the Australian Taxation Office.

The associate then has income in the form of lease rental receipts to declare when completing their taxation return. The University is required by the ATO to deduct PAYG tax at 48.5% from all payments where an ABN or a Statement by a Supplier is not provided from the Associate.

The expenses incurred in providing that vehicle to the University are tax deductible and an income and expense statement might look something like this: Year ending 30/06/XXXX Income Lease rental (26*$400) $10,400 Expenses Depreciation (17,500 * 22.5%) $3,938 Insurance $550 Interest on loan(s) $1,000 Registration $450 Fuel $2,000 Repairs & maintenance $2,500 TOTAL EXPENSES $10,438

Net income (loss) ($38) The lease can be cash flow neutral to the employee, thereby effectively transferring income to the associate tax-free. Note: the vehicle is required to be registered in the Associate’s name. This may require the transfer of registration if the vehicle is currently registered by the employee or jointly registered There are a number of considerations that must be kept in mind prior to entering into an Associate Lease Agreement, these include:

 When the vehicle is sold there may be capital gains tax implications  There are different depreciation methods  FBT is still applicable under the statutory formula  There are record keeping requirements to verify the expenses.

Applying vehicle costs to a remuneration package

To calculate the vehicle costs to your remuneration, two components are used. They are Fringe Benefits Tax and Lease. At the beginning of each lease these costs are estimated for the lease period, and are then paid through your salary each fortnight as a salary sacrifice deduction (ie pre-tax deduction).

The components are: 1. Fringe Benefit Tax (FBT)  The FBT year is 1st April to 31st March.  FBT is calculated at 46.5% of the grossed up taxable value.  The grossed up taxable value is calculated by taxable value of the vehicle X 2.0647 (formula and rate provided by ATO)

Except in the following circumstances:

 The grossed up rate for Associate leases with the Associate NOT registered for the GST will be 1.8692.  The grossed up rate for Reportable Fringe Benefits will be 1.8692.

2  The Statutory Formula Method is used to calculate the Fringe Benefit Tax. FBT is calculated on the grossed up taxable value. The taxable value is calculated on the base value of the vehicle (including GST and accessories) X the statutory percentage X number of days available for private use in the FBT year / number of days in FBT year less any employee contributions paid after tax. (See below for example)  The following scale is used to determine the statutory percentage. This is based on the number of kilometres travelled each FBT year. The greater the distance travelled, the lower the taxable value will be. At the beginning of the lease, estimated kilometres supplied by the lessee for the FBT year are used for the initial calculations. Included in the statutory percentage is an assumption of implied business use.

There are four statutory formulas, the following scale of kilometres travelled are used:

Number of Kilometres per FBT year Statutory % Implied Business From To Use % 0 14,999 26% 19% 15,000 24,999 20% 45% 25,000 40,000 11% 74% 40,000 And above 7% 85%

Example calculating taxable value and FBT payable: Vehicle travelling 20,000 km pa with a base value of $20,000, available for the full year with no after tax contributions.

Vehicle base value $20,000 Multiplied by Statutory Percentage (as per table above) 20% $ 4,000 Taxable value $ 4,000 Multiplied by Gross up 2.0647 $ 8,259 Total FBT payable 46.5% $ 3,840  Each quarter the Services Unit and Human Resource Unit will provide the Finance Unit with odometer readings and details of operating costs. At the end of each FBT year (1st April to 31st March of the following year) the Finance Unit will calculate the FBT liability.

2. Lease  Lease payments include insurance, registration and running costs.

Other issues to be aware of that may affect your decision on leasing a motor vehicle:

Reportable Fringe Benefits

 If the taxable value of the fringe benefits you receive in a FBT year (1 April to 31March) exceeds $1,000, the grossed-up taxable value of those benefits will be recorded on your group certificate for the corresponding income year (1 July to 30 June).  Fringe benefits reported on the group certificate will now be taken into account by the Australian Taxation Office when calculating the:  Superannuation surcharge;  Medicare levy surcharge;  Eligibility for certain social security benefits;  Rebates for contribution to spouse superannuation;  Repayment of HECS debt;  Child support payments;  Termination payments surcharge.  Some fringe benefits are excluded eg meal entertainment and car parking.

Employee Contributions Employees whose marginal tax rate is lower than 46.5%, (taxable income under $150,000) can reduce the taxable value by making after tax contributions towards the running costs of the vehicle. This could save the employee tax if their marginal rate is lower than the FBT rate.

3 Reconciling Costs

At the end of the lease the estimated vehicle expenses to actual costs will be reconciled. Any adjustments will then be made via the Payroll system. Any monies owed will be paid back as a taxable allowance; monies underpaid can be salary sacrificed.

Fees and Charges

A University administration fee of $13 per fortnight plus a $30 set up fee will be charged for each lease. This fee will be salary sacrificed. Procedures

1. Read the Salary Sacrifice Guidelines and Conditions on the HR web page http://www.unisa.edu.au/hrm/conditions/salsacrifice/salsacrifice.htm

2. Print Salary Sacrifice Vehicle Information for an Associate Lease on the HR web page.

3. Consult with your financial planner/accountant.

4. Your financial planner/consultant will calculate the vehicle lease costs and help you complete Appendix 1 – HRIS 043 Associate Lease Application and Agreement Form.

5. Forward completed and signed application and agreement forms with a copy of the registration papers and valuation certificate to the Salary Sacrificing Officer.

6. Salary Sacrificing Officer commences Associate Lease.

To contact the Salary Sacrificing Officer or to direct any queries about salary sacrifice to the Client Services Help Line (08) 8302 1786 or e-mail [email protected]

Completed applications and agreement forms are to be sent to:

The Salary Sacrificing Officer Human Resource Unit 101 Currie Street City West Campus

4 Appendix 1

HRIS 043

ASSOCIATE LEASE APPLICATION AND AGREEMENT FORM

Please complete all pages and forward to:

The Salary Sacrificing Officer Human Resource Unit 101 Currie Street City West Campus or GPO Box 2471, Adelaide 5001

...... ………………….. of ……………………………………….. (insert full name) (Insert residential address)

………………………………………………………………………………………………………….. hereby agree that upon termination of my employment with the University of South Australia, monies owing as a result of my salary sacrifice arrangements may be recovered by the University of South Australia from any annual leave, long service leave, salary or bonuses owing to me at that date. I further agree that in the event the monies owing to the University exceed the amounts owing to me I will fully reimburse the University of South Australia for the shortfall prior to my departure.

I acknowledge that I have read the University of South Australia Salary Sacrifice Guidelines & Conditions, Salary Sacrifice Vehicle Information for Associate Lease. The University reserves the right to amend the Salary Sacrifice Guidelines & Conditions at any time, I acknowledge it is my responsibility to ensure I have read and understood these amendments and have sought financial/taxation advice.

I accept that by electing to make a pre-tax contribution as part of this salary sacrifice arrangement my wages may be less than provided for under the applicable industrial instrument. Where this occurs I accept that the University will have no liability in respect of that shortfall.

I acknowledge that the University of South Australia accepts no liability should I fail to seek financial advice or for financial and taxation advice that I receive. A directory of financial planners is available from the Financial Planning Association at http://www.fpa.asn.au/

Signature …………………………………………… Employee ID……………………….……

Dated ……………………………………………… Contact phone number…………………

5 HRIS 043 ASSOCIATE LEASE APPLICATION AND AGREEMENT FORM

Application

Motor Vehicle Details Make ...... Model ......

Registration ...... Engine Capacity ...... …………………

Odometer Reading ...... Engine Number ...... ………….

Annual Kilometres ...... Chassis Number ...... …………………

Purchase Price $...... Colour (interior) ......

Business use (%) ...... Colour (exterior) ...... …………

Date Vehicle Originally Purchased ……\……\……

Business Accessories Included in Purchase Price (if any) $......

Associate Details:

Name ......

Address ......

ABN (where applicable) ...... Input Tax Credit Entitlement (for GST)? Yes/No

Name of bank ......

BSB ...... Account No ......

1. Budgeted weekly petrol expenditure ………...... pw x 52 =$...... … ………..pa

2. Budgeted annual maintenance cost $...... …… pa

3. Registration $...... pa

4. Insurance $...... pa Insurance company ......

5. Notational Lease Payment $...………………………….pa

Total Lease costs (excluding FBT) (1+2+3+4+5) $...... pa

Lessee Details: University of South Australia GPO Box 2471 Adelaide 5001

Employee Details: Name ......

Address......

I have enclosed copies of the:  Vehicle registration papers  Purchase receipt

Employee’s signature ...... Employee’s name ......

Associate's signature ...... Associate's name ......

6 HRIS 043 ASSOCIATE LEASE APPLICATION AND AGREEMENT FORM

Agreement

This AGREEMENT made the ...... day of ...... year…..….…

This LEASE is made BETWEEN:

...... ………………………………………..………………………………………….. (Name of the registered vehicle owner) of ...... …………………………..………………………………...... (Address)

AND The University of South Australia (“the Lessee”)

RECITALS ...... is the owner of a ……………………...... motor vehicle, registration number……...... The Owner has agreed to Lease the vehicle to the Lessee.

The Lessee has undertaken to accept the obligation to make the payments due under this Lease during the term of the Lease.

NOW THIS LEASE WITNESSES and the parties agree as follows:

This Lease shall commence on the ...... day of ...... year...... and shall continue until the ...... day of ...... year………… (‘the Term’) subject to early termination and herein provided and to be renewed thereafter by mutual negotiation between the Lessee and the owner. The Owner hereby Leases the Vehicle to the Lessee for the Term. The Lessee shall at all times during ‘the Term’ pay to the owner the rent reserved by this Lease on the day and in the manner provided in this Lease. The total amount payable under this Lease is $…………..per annum (I.e. lease costs), payable monthly.

It is acknowledged that the Lessee may make the vehicle available for the use of the Owner and the Owner’s associates (as defined in the Fringe Benefits Tax Assessment Act 1986). The Owner will be responsible for all maintenance costs and running costs (including registration, insurance, repairs, oil and fuel, etc) of the Vehicle during the Term of this Lease. This Lease may be terminated by four week’s notice in writing from the Lessee.

The costs of incidental to the instructions for and the preparation, execution and stamping of this Lease and all stamp duties and other out goings payable in respect of this Lease shall be borne and paid by the employee.

EXECUTED by the parties this...... day of...... year ……..

SIGNED by the said Owner: ______

SIGNED on behalf of the said Lessee: ______