GLOBAL Change to Leasing! Are you ready for AASB 16? Complete the checklist to find out

Let’s explore the idea of giving your employees access to company cars and Novated Leasing in order to increase attraction to your company, their role and overall job satisfaction.

I’ve been in fleet and Novated Leasing now for more than 16 years and there is plenty of data, evidence and examples that prove that the provision of company cars, or Novated Leases, is not only a great way of attracting valuable people to your organisation and keeping them happy, but it is essential to some roles. Further to this though – if you don’t offer it, you risk losing those individuals to another organisation that does.

I want to keep this really simple. Here in Australia we’ve had a pretty decent ride for a long time now – tax laws that allowed us to provide our valued staff members with company leased cars that didn’t need to show on our balance sheet as an asset or a liability; rather simply as an expense for the lease with the claimable tax benefits still in effect.

Most of us have cleverly used this as a part of the allowance and attraction for our employees to include in their salary package, providing them an additional sense of income and satisfaction for their role. Traditionally, a certain amount of personal use was allowable, and easily demonstrated that the car is still completely necessary for the role with ‘not a lot’ of additional cost or evidential data required. This is all about to change!

Say hello to AASB 16

AASB 16 is a Worldwide Accounting Standard that requires all leased assets to be recorded and reported in the same manner.

This change is worldwide and comes in to effect on January 1st 2019… Are you ready?

The Federal Register of Legislative Instruments F2016L00233 says it like this: “… Leasing is an important activity for many entities. It is a means of gaining access to assets, of obtaining finance and of reducing an entity’s exposure to the risks of asset ownership. The prevalence of leasing means that it is important that users of financial statements have a complete and understandable picture of an entity’s leasing activities …”

Basically, any lease with a term of 12 months or longer will now require the introduction of one single [new] accounting model, recognising a ‘right-of-use’ asset as a leased asset and a lease liability, and an understanding of the company’s obligation to make lease repayments – unless the asset is of low value.

The big changes of AASB 16

What does all this mean?

Focusing on vehicles, it means the lease asset, the liability and lease expense need to be recognised on your balance sheet – as mentioned this was previously NOT the case for an Operating Lease where neither the lease NOR the liability had to be shown, just the expense in the budget to prove serviceability.

So, what can you do?

The changes begin in less than one month and we’re already in a busy time of year – in fact, regularly referred to as “the silly season”, so we’ve put together a “health checklist” to help you recognise and prepare yourself for the imminent changes. This checklist contains all the things you need to be prepared for – PRIOR to January 1st.

As you can see, it will be a costly and time-consuming exercise to keep your Operating Leases – costs that will be incurred upon inception of AASB 16, but also on an ongoing basis. So, what are your other choices? What are you going to replace the Operating Lease with? Allow me to share the best option with you and then explain why it’s a GREAT idea.

The simple, low-cost solution

Two words: Novated Lease. Yep, it’s that simple!

Why? That can be answered in 3 simple points:

  1. The vehicle can easily be fit for purpose
  2. Each individual staff member can choose what they want to drive; meeting work AND lifestyle requirements.
  3. There’s no financial risk to you as an employer – that’s right, it stays off the balance sheet!

Here’s what to do next:

  • Work out the real costs associated with your current company car provision
  • Pay your staff a car allowance or increase their pay to suit the replacement of the previous company supplied vehicle
  • Boost exposure to your Novated Lease program
  • Give them a suitable period of time to decide on and find their new vehicle
  • Start the process when they take delivery

Let me summarise and reiterate the importance of this inevitable change: we are all fully aware of the increased satisfaction (if not dependence) the provision of a company car or Novated Lease is for the valued employee within their role. On the 1st of January 2019 AASB 16 begins and it WILL change the costs and perceived value of company owned vehicles – making the most virtuous solution turning to your Novated Lease program in order to minimise the cost AND keep your staff satisfied.

 

INSIDE EDGE have been providing solutions and transitioning all manner of fleets across Australia (all industries) for the past 10 years. We are ready, willing and available to speak with you about your fleet today!

Run the AASB 16 health-care checklist for your business and contact our team on 1300 55 1987, or send me an email at tasman.bateman@iedge.com.au – let us assist in the transition of your fleet vehicles before it starts costing you money!

Alternatively, discover how one large Australian retailer used Novated Leasing to free itself of 160 company cars with no extra financial burden or strain to employee relationship.

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