SALARY SAC­RI­FICE

Salary sac­ri­fic­ing is a pop­u­lar way of min­imis­ing tax­able in­come, par­tic­u­larly in the ed­u­ca­tion sec­tor where novated leases are be­com­ing an in­creas­ingly pop­u­lar op­tion for teach­ers.

The Australian Education Reporter - - FRONT PAGE - EMMA DAVIES

NOVATED leases are a com­mon form of salary sac­ri­fice where em­ploy­ees have a per­sonal ve­hi­cle leased through a third party fi­nancier.

The em­ployer meets the re­pay­ments of the lease and the em­ployee sac­ri­fices part of their salary to cover the cost of the fi­nance. The third party fi­nancier of the ve­hi­cle will most likely be a mem­ber of the Aus­tralian Salary Pack­ag­ing In­dus­try As­so­ci­a­tion (ASPIA).

ASPIA is the in­dus­try body rep­re­sent­ing salary pack­ag­ing and novated lease providers in Aus­tralia. As well as hav­ing close ties with the ATO and the Trea­sury, the as­so­ci­a­tion is a recog­nised con­sul­ta­tive as­so­ci­a­tion for both State and Fed­eral Gov­ern­ments.

ASPIA chair­man Leigh Penberthy be­lieves that young pro­fes­sional peo­ple who are en­ter­ing the ed­u­ca­tion sec­tor want the op­por­tu­nity to have a ve­hi­cle that suits their life­style.

“If I look at peo­ple work­ing in the ed­u­ca­tion sec­tor, in the main they are young pro­fes­sion­als 25-40 years old,” Mr Penberthy said.

“I think there’s a life­style op­por­tu­nity for peo­ple in the ed­u­ca­tion sys­tem and novated leas­ing is a very affordable way of own­ing and op­er­at­ing a ve­hi­cle that suits their life­style.”

The ben­e­fits for teach­ers in­clude the op­por­tu­nity to re­duce their tax­able in­come. The em­ployer pays for the car and all its as­so­ci­ated run­ning and main­te­nance costs from the em­ploy­ees’ pre-tax in­come.

This means salary pack­ag­ing re­duces the em­ploy­ees over­all tax­able in­come and the lease re­pay­ments also be­come a tax de­ductable pay­ment that the em­ployer can claim.

There are many spe­cialised com­pa­nies of­fer­ing salary pack­ag­ing fi­nan­cial ser­vices and novated lease agree­ments who of­fer con­ve­nience and fi­nan­cial ben­e­fits to both par­ties by man­ag­ing the lease for the term of the agree­ment. Be­tween 85 per cent and 90 per cent of novated lease providers are mem­bers of ASPIA.

“The in­dus­try is bro­ken up into three seg­ments; the big guys who sit at ASX level, then the mid tier or­gan­i­sa­tions who can work up into some of the larger ar­eas, such as cor­po­rate and gov­ern­ment work down into mid cor­po­rate work and char­i­ties and non for profit and health sec­tors — ed­u­ca­tion is in­cluded in that sec­tor,” Mr Penberthy said. “Then you have the smaller groups.”

There have been no re­cent pol­icy de­vel­op­ments since 2013, when the Rudd Gov­ern­ment pro­posed a change in the method­ol­ogy for cal­cu­lat­ing novated leases which Mr Penberthy said was a wakeup call for the in­dus­try.

“The as­so­ci­a­tion had to look at it­self, its con­sti­tu­tion, how it man­aged it­self at a pro­fes­sional level, and how it re­lated and in­ter­re­lated with the var­i­ous or­gan­i­sa­tions and au­thor­i­ties and reg­u­la­tors,” he said.

The fringe tax ben­e­fits are worth con­sid­er­ing be­fore en­ter­ing a novated lease agree­ment. Teach­ers should com­pare the ben­e­fits against their in­come and the po­ten­tial sav­ings.

“Peo­ple are al­ways hes­i­tant to do some­thing they don’t un­der­stand very well and as pro­fes­sional ed­u­ca­tors, teach­ers are very con­ser­va­tive by na­ture and they want proof of how the ben­e­fits work,” said Mr Penberthy.

“We can’t give fi­nan­cial ad­vice, that’s not our role, our role is to make sure teach­ers and the ad­min­is­tra­tive staff who work in the schools, un­der­stand the value and the op­por­tu­ni­ties of tak­ing a novated lease.”

“MR PENBERTHY SUG­GESTS THERE ARE COM­MON MIS­CON­CEP­TIONS PEO­PLE HAVE ABOUT TAK­ING OUT A LEASE, SUCH AS RE­QUIR­ING A LARGE SALARY, ONLY PUR­CHAS­ING NEW CARS, OR DO­ING LOTS OF MILES TO MAKE IT WORTH­WHILE.”

Mr Penberthy sug­gests there are com­mon mis­con­cep­tions peo­ple have about tak­ing out a lease, such as re­quir­ing a large salary, only pur­chas­ing new cars, or do­ing lots of miles to make it worth­while; none of which he says are true.

ASPIA wants peo­ple to be ed­u­cated about the prod­uct and is pi­lot­ing a train­ing ac­cred­i­ta­tion pro­gram for in­dus­try mem­bers in an ef­fort to make sure the in­dus­try re­mains com­pli­ant and that ASPIA mem­bers are skilled in the tech­ni­cal and fi­nan­cial as­pects of novated leases.

Mr Penberthy rec­om­mends us­ing providers who are mem­bers of the In­dus­try As­so­ci­a­tion.

“Peo­ple look­ing for a provider should al­ways look to see that they are a mem­ber of the in­dus­try as­so­ci­a­tion be­cause they would typ­i­cally be bet­ter trained and bet­ter ed­u­cated around all th­ese fac­tors of salary sac­ri­fice and novated leas­ing.”

All im­ages: Stock.

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