Are you currently leasing a fleet of company cars, or thinking about it?
Until recently, having Operating Leases on a company fleet was a popular option for many businesses. A company car offered a great employee incentive; it was something for employees to aspire to, and a great way to present your company to clients and the general public.
But, like a trusty old ute whose time has come, Operating Leases are about ready for the scrap heap. The benefits they offered are about to wear out — thanks to some major challenges brought in by new accounting standards.
Effective from 1st January 2019, the Australian Accounting Standards Board (AASB) is set to change Operating Lease accounting as we know it. All through the introduction of a new standard known as AASB 16.
And as this change approaches, internal finance teams will be exposed to challenges beyond just reporting.
The challenges presented by AASB 16
A company-owned fleet is can be a pain to maintain. The responsibility is on you; you have to pay rego and insurance, take care of any damage and, of course, there is the dreaded Fringe Benefits Tax. Even if you outsource there’s still a lot of work.
But even if you already accept those challenges, this change is set to have an even bigger impact on your balance sheet. AASB 16 forces you to recognise the lease asset on your balance sheet, together with the lease liability.
That means new policies and processes must be created and implemented to capture accurate leasing data. Systems will also have to be modified in order to manage lease strategies, asset turnover and credit ratings.
Ultimately, you’re going to have to do more.
The biggest fear? That companies will underestimate the cost, time and effort required to transition and act on these changes. So, as if your internal finance team hasn’t got enough on their plate, they need to start preparing for these changes now.
How to adjust to AASB 16, avoid the penalties, and offer a great employee incentive
Innovative and savvy businesses will use the AASB 16 change to give their company car program a health check — and look to minimise expenses. Finding ways to keep these company cars from creeping onto the balance sheet should be high on the agenda.
One way to combat the negative effects that AASB 16 will have on your business is to do away with the company fleet.
Because what do you do when that rusty old work ute starts to cost more than it’s worth? You get rid of it! Well, Operating Leases are now that old ute.
But there is another option: you can offer a Novated Lease to your employees. It still offers the same incentives — a new car for employees, a cost-effective engagement program — but with so much less responsibility than an Operating Lease.
Most importantly: vehicles provided under a Novated Lease will remain off your balance sheet — as opposed to Operating Leases, which will be captured under the new standard.
There is already a growing shift towards employers utilising Novated Leasing as a preference. It’s proven to be the most savvy way to maximise “company car dollars” for both employer and employee alike.
This article was provided by Inside Edge. Inside Edge have extensive experience in assisting organisations as they transition from Operating Lease vehicles to providing employees with a Novated Leasing option. To talk more about how AASB 16 will affect your business, and what you can do to provide your employees with an alternative option to a company car, give them a call on 1300 55 19 87.
