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.


How will AASB 16 affect you?

One person who knows AASB16 back to front is Brad Davidson, Corporate Sales Manager at Inside Edge. Check out his short video below to discover how this change will affect you, and one key way you can avoid these unnecessary headaches.

Changes to car lease accounting standards – are you ready for AASB 16?

Are you currently leasing a fleet of company cars?

Until recently, Operating Leases were a popular and effective option for a company to operate a fleet of cars. Not anymore!

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.

In this blog, I’ll look at exactly what this means for your business.

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

To be frank, a company-owned fleet is already a pain to maintain.

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.

My biggest fear?

That companies will underestimate the cost, time and effort required to transition and act on these changes and not recognise there is a solution available.

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 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 affects that AASB 16 will have on your business is to change the company fleet. This is an opportunity to keep everyone happy, Human Resources, Employees, Finance and the ATO.

Because what do you do when that trusty old work ute starts to cost more than it’s worth?

You get rid of it and replace it with something more cost effective and reliable.

Well, Operating Leases are now that old beat-up ute and Novated Leases are the brand new 4×4 multi-purpose Dual Cab!

Novated Leases deliver:

  • Cars fit for purpose, meeting OH&S standards;
  • Marrying work and lifestyle requirements for Employees;
  • Company ownership cost reductions;
  • No balance sheet ramifications under AASB 16; and,
  • Manufacturer and dealer fleet pricing across all brands.

I’ve spoken previously about the benefits of a Novated Lease, both to Employees and Employers. But in short: they solve all your Leasing issues.

I’m already experiencing a growing shift towards Employers utilising Novated Leasing as a preference. It’s proven as the most savvy way to maximise “company car dollars” for both Employer and Employee alike.

Give me a call on 1300 55 1987 to learn how you can join these businesses and become an Employer of choice with an INSIDE EDGE Novated Lease Program

Interested in seeking a Novated Leasing option for your business?

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 me a call on 1300 55 1987.

Bradley Davidson
Manager – Corporate Sales

INSIDE EDGE – Novated Know How