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Esanda MultiLease and the IRD - Backgrounder

Backgrounder esanda – 1
June 7, 2001

BACKGROUNDER
Esanda MultiLease and the IRD


What has happened?
The New Zealand Inland Revenue Department has ruled on an innovative vehicle leasing scheme developed nine years ago by Esanda Fleet partners (formerly Avis Lease).

Instead of a more common three year lease, Esanda devised a one-by-one-by-one vehicle leasing scheme. Esanda says it promotes flexibility for clients wishing to change vehicles or terms more frequently than every three years. The company has called it Esanda MultiLease

A by-product of Esanda MultiLease — effectively a one year lease with the option to renew at the end of 12 months — is a reducing market value of the vehicle because it is effectively revalued every year. That results in lower FBT liability and GST on that liability in the second and third year leases.

Esanda says savings in FBT and GST can amount to up to 20 per cent for businesses.

The IRD has now confirmed the validity of the scheme by providing a binding ruling on it at the instigation of Esanda Fleet Partners.

There had been several years of keen debate about the scheme and in the late 1990s the IRD challenged a claim by an Esanda client. The IRD then declined to proceed with the case and Esanda subsequently asked for a binding ruling.

That ruling — exclusively in favour of Esanda MultiLease — was announced in May 2000. The IRD is to publish the ruling on its web site in June.

Who is Esanda?
Esanda Fleet Partners was formerly AVIS Lease, the company that devised the MultiLease scheme in 1992. It is a wholly-owned, independent subsidiary of ANZ Bank.

At present, the company has leased assets of more than $350 million making it arguably the biggest specialist vehicle leasingcompany in New Zealand.

What is Fringe Benefit Tax?
Most benefits given to employees other than their salary or wages are fringe benefits . FBT is levied on goods or services supplied by a business that are consumed by a tax paying staff member as a result of his or her employment they are liable for FBT.

An example is the use of a company vehicle for private activities, such as driving to and from work or low interest loans supplied to a staff member.

What is its relevance here?
Because FBT is applied as a percentage of the value of the vehicle, if the vehicle is worth less the tax charged is less. In a one-by-one-by-one Esanda MultiLease, the vehicle is revalued at the end of every 12 months.

Because the vehicle’s value is realigned to market value each year the lessee renews, the tax charged is lower and the GST is lower than it would have been in a three year lease.

Seventy per cent of FBT collected relates to motor vehicles and the so-called “perk” vehicle is almost extinct. That’s because most motor vehicles used by businesses are now “tool of trade” vehicles i.e. necessary to get the job done.

Who uses MultiLease?
Many of Esanda’s big corporate clients choose to use MultiLease but it is also popular amongst small businesses looking to have the flexibility to reduce fleet inexpensively.

The size of the lease market in New Zealand is estimated at about 60,000 vehicles, still only about 30 per cent of all fleet vehicles. In more mature markets, say Europe, the percentage of fleet vehicles is upwards of 50 per cent so there is room for growth in New Zealand.

ends

Issued for Esanda Fleet Partners by Pead PR


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