12.0 Leasing Arrangements

12.1 Operating Lease

An Operating Lease is where the motor vehicle is leased to the University by a Fleet Company and provided to the employee on a fully maintained basis

Motor Vehicle Range
This method is suitable for new motor vehicles only. Employees may only negotiate one motor vehicle per package under this method. Ownership of the motor vehicle remains with the Fleet Company, but is registered in the name of the University. However the employee has full use of the motor vehicle for his or her own purposes and remains responsible for the vehicle in the same way as if he/she had ownership of the vehicle.

Payments
The University pays the lease rental to the Fleet Company. However, the employee must set aside funds within their salary package to cover lease payments, fuel, insurance and normal maintenance.

Registration
The Fleet Company pays the motor vehicle registration and the Curtin Transport Office forwards the annual renewal advice to employees. It is the employee's responsibility to ensure that a current registration label is displayed at all times. Failure to do this may jeopardise the motor vehicle's insurance policy and place the employee at financial risk in the event of a failed insurance claim.

Lease Payments
Lease payments are set by the Fleet Company based upon the motor vehicle cost, commercial interest rates, government taxes and duties, lease term, nominated kilometres and an estimated residual value.

Insurance
Insurance is negotiated and administered through the Lease Company and is automatically included in the costs covered in the vehicle package.

Purchase Option
Employees may negotiate with the Lease Company regarding the purchase of the vehicle at the end of the lease but have no right of purchase. Employees should seek advice from a Salary Packaging Consultant before taking this step.

Lease Expiry
The motor vehicle is to be returned to the Fleet Company at the end of the lease term unless the term is reduced or extended by mutual agreement between the Fleet Company and the University. Employees must seek advice from a Salary Packaging Consultant and sign an amended package where required.

Effect of Lease Expiring
On expiry of the lease, the employee must return the motor vehicle to the Fleet Company. The University will continue to make lease payments after the lease expiry date, as lease payments are made in arrears. The University will meet the obligations of the lease and thereafter make no further payments to the Fleet Company providing:

1. There is no excess kilometre charge payable.
2. There is no rental adjustment due to the early return of a motor vehicle.
3. There is no rental adjustment due to the late return of a motor vehicle.
4. There is no registration renewal due to the late return of a motor vehicle.

Upon receipt by the University of the Supplier's Invoice for any of the above charges a copy will be issued to the employee who will be required to make payment via salary sacrifice on the pay date following.

12.2 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 University. 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 a University provided motor vehicle for both the purposes of the Income Tax Assessment Act and the Fringe Benefits Assessment Act.

Associates must provide their Australian Business Number (A.B.N.) to the University and must also be registered for GST purposes. Without the A.B.N., the University will not enter into this type of leasing arrangement.

Motor Vehicle Range
This method is suitable for any type of motor vehicle, either new or used. No minimum value applies and the motor vehicle can be subject to a financing arrangement eg a bank personal loan. Employees may negotiate to have one or more motor vehicles in their Package under this method. Ownership of the motor vehicle remains with the Associate although the employee has full use of the motor vehicle for his or her own purposes.

Payments
The University pays the lease rental to the Associate. However, the employee must set aside funds within their salary package for lease payments, fuel, insurance, registration, maintenance and repair costs.

Registration
Motor vehicles must be registered in the name of the Associate before it can be considered for packaging. Once the vehicle is packaged, it is the employee's responsibility to ensure a current registration label is displayed on the motor vehicle at all times. Failure to do this may jeopardise the motor vehicle's insurance policy and place the employee at financial risk in the event of a failed insurance claim.

Insurance
The University requires that the vehicle is comprehensively insured for the duration of the lease. The insurance must cover both business as well as private use.

Valuation
A written valuation and comprehensive safety check report on the motor vehicle must be provided by the RAC.

This valuation is required for Fringe Benefits Tax and insurance purposes, and also serves as an audit of the condition of the motor vehicle before it is leased by the University. The report will state the roadworthiness of the motor vehicle, detailing any repairs that are required and the cost estimates of having the work performed.

Lease Payments
Lease payments made by the University to the Associate are determined by a Salary Packaging Consultant based upon the written valuation of the motor vehicle and in accordance with ATO guidelines.

Lease Payment Date
Lease payments are payable in arrears and are paid at the end of each month into the Associate's bank account.

Lease Expiry
At the end of the lease, the agreement may be renewed by mutual negotiation between the Associate and the University. Requests to extend lease terms are to be made to the Salary Packaging Office at least one month prior to the expiry date. An associate leasing arrangement ends if:

1. The lease is not renewed, or
2. The employee ceases employment with the University, or
3. Written notice to terminate the lease is given by either the Associate or the University.

Effect Of Lease Expiring
On expiry of the lease, the motor vehicle ceases to be a University provided motor vehicle and must be returned to the Associate by the employee.

This means the University's obligation to make lease payments to the Associate (other than those in arrears) ceases immediately and full responsibility for the motor vehicle, including payment of insurance, registration and running costs, reverts to the Associate without any residual liability to the University whatsoever.

Taxation Implications for Associates
Lease payments received by an Associate from the University is assessable income. However, the Associate would normally be entitled to claim a deduction for depreciation and interest paid on loans used to finance the purchase of the motor vehicle. The Associate would also be able to claim the Input Tax Credit with respect to GST.

On disposal, that part of the motor vehicle sale price received which exceeds the depreciated value of the motor vehicle is assessable income to the Associate. It is an Associate's responsibility to seek advice on these matters.

Neither the University, its officers, employees, contractors or agents can be held responsible should an associate leasing arrangement prove to be inappropriate to either an Associate's or employee's circumstances.

Financial Risks For Employees
It is important employees understand that the risks involved with leasing under this method are transferred from the University to the employee under a Motor Vehicle Agreement. The main risks lie in employees' failure to:

1. Properly maintain the motor vehicle in good order.
2. Achieve the budgeted statutory rate for FBT purposes.

Employees should discuss any concerns they may have with a Salary Packaging Consultant.

Motor Vehicle Delivery and Package Start Date
Once packaged, the motor vehicle is handed over to the employee. Unless otherwise agreed, these arrangements are to be co-ordinated between the employee and the Associate. A motor vehicle is recognised as a University provided motor vehicle from the lease start date. An employee's obligations also start at that time.

The lease commencement date is set by the Salary Packaging Office to ensure the employee's Package start date and the fortnightly pay cycle are co-ordinated.

Only expenses incurred after the start date can be reimbursed to employees from their Package.

Associate Lease Example

Assumptions:

• Motor Vehicle taxable value is $30,000.
• The spouse's debt on the motor vehicle is $15,000 via a bank loan at an interest rate of 8%.
• The motor vehicle travels 16,000 kms annually (equivalent Statutory Rate of 20%)
• Fees (3% of package + $450 (Consultant) + $50 (start up) + $78 (annual package maintenance)

FBT Value x Statutory Rate(%) x Gross Up x FBT
30,000 x 20% x 2.129189 x .485 = 6,196

IT IS THE ASSOCIATES RESPONSIBILITY TO SEEK FINANCIAL ADVICE ON THESE MATTERS, NEITHER THE UNIVERSITY, IT'S OFFICERS, EMPLOYEES, CONTRACTORS OR AGENTS CAN BE HELD RESPONSIBLE SHOULD THE ASSOCIATE LEASE PROVE INAPPROPRIATE TO EITHER THE EMPLOYEE'S OR ASSOCIATE'S FINANCIAL CIRCUMSTANCES

NOTE: THE SALARY PACKAGING CONSULTANTS ARE ATHORISED TO PROVIDE REMUNERATION PLANNING ADVICE ONLY. THEY ARE NOT AUTHORISED TO PROVIDE FINANCIAL ADVICE.

12.3 Novated Lease

A Novated Lease is a standard finance leasing arrangement where an employee enters into an agreement with a Financier for the purchase of a motor vehicle.

Under a Deed of Novation, the Financier allows the University to assume liability for the monthly lease payments as long as the employee works for the University. Once the Deed is in place, the motor vehicle is recognised as a University provided motor vehicle for the purposes of the Income Tax Assessment Act and the Fringe Benefits Tax Assessment Act.

Motor Vehicle Range
This method is suitable for any type of eligible motor vehicle, either new or used, subject to the motor vehicle being purchased through a licensed motor trader. No minimum value applies. Employees may negotiate to have one or more motor vehicles in their Package under this method.

Ownership of the motor vehicle remains with the Financier although the employee has full use of the motor vehicle for his or her own purposes. The employee may negotiate with the financier at the end of the lease to purchase the motor vehicle.

Payments
The University pays the lease rental to the Financier. However, employees must set aside funds within their salary package for lease payments, fuel, insurance, registration, maintenance and repair costs.

Registration
Motor vehicles must be registered in the name of the employee before being considered for packaging. Once packaged, it is the employee's responsibility to ensure a current registration label is displayed at all times. Failure to do this may jeopardise the motor vehicle's insurance policy and place the employee at financial risk in the event of a failed insurance claim.

Finance
Finance approval rests with the Financier and applicants need to satisfy the Financier's usual individual credit assessment criteria.

Lease Payments
The Financier determines lease payments, lease term and residual value. The residual value is determined based on the expected market value of the motor vehicle at the end of the lease term. The Financier will also prepare the Deed of Novation.

Lease Payment Date
Lease payments are usually in arrears and are paid at the end of each month to the Lease Company. However, on occasions, depending upon the Financier, the employee may have to make the first payment and claim reimbursement once the package has commenced.

Lease Expiry
At the end of the lease employees can:

1. Return the motor vehicle to the Financier, or
2. Seek re-financing for a further term, or
3. Negotiate to purchase the motor vehicle.

Approval to re-finance rests totally with the Financier and should be finalised one month prior to the lease expiry date.

End of Novation Arrangement
A novation arrangement ends if:

1. The lease is not re-financed, or
2. An employee ceases employment with the University, or
3. Written notification is given by the employee, University or the Financier.

Effect of Novation Arrangement Ending
On cessation, the motor vehicle ceases to be a University provided motor vehicle for the purposes of the Fringe Benefits Tax Act and Income Tax Assessment Act. This means the University's obligation to make lease payments (other than those in arrears) to the Financier is at an end. Full responsibility for the motor vehicle, including any ongoing lease payment commitments, insurance, registration and running costs, reverts to employees without any residual liability to the University whatsoever.

Financial Risks for Employees
It is important employees understand that the risks involved with leasing under this method are transferred from the University to the employees under a Motor Vehicle Agreement.

The main risks involved arise where:

1. Employees' circumstances suddenly change and the lease obligations revert to employees.
2. The motor vehicle's market value is less than the agreed payout figure (ie lease residual) at the end of the lease. In effect, employees guarantee the Financier no loss on the residual value.
3. Employees' do not achieve the budgeted statutory rate for FBT purposes.

Where used cars are involved, the issues of obsolescence and higher maintenance should be considered.

Motor Vehicle Delivery and Package Start Date
On receipt of the relevant documentation (and payment of the first month's rental where applicable), the Financier will authorise the dealer to release the motor vehicle to the employee. However, as an employee's package can only commence on the first day of the University pay cycle ie a Friday, therefore employees can only take delivery of the motor vehicle when authorised by the University to do so.