Leaseback arrangements

The provision of a motor vehicle for work-related and private use is a common arrangement undertaken by many councils across NSW to provide a tax-effective reward to selected positions. 

6 December 2023 

By Mateo Lopez

A leaseback arrangement is one where a car is purchased by a council for council use and is leased to an employee for their private use.

Clause 18B of the Local Government (State) Award 2023 (“the Award”) sets out the arrangements relevant to leaseback vehicles. Most saliently, these arrangements may be undertaken as a condition of employment or as a discretionary benefit that does not form part of the conditions of employment.

For a leaseback arrangement to be recognised as a discretionary benefit, as opposed to a condition of employment, it must be clearly identified upon commencement of the leaseback agreement that this is the case. Important factors to consider in determining whether the arrangement is a condition of employment include whether the vehicle was offered as an incentive to attract and/or retain the employee and the period that the employee has had access to the vehicle.

Where a leaseback arrangement is entered into as part of an employee’s conditions of employment, the agreement may only be terminated by agreement. Where the vehicle provision is deemed to be a discretionary benefit, the agreement may be terminated by council through the provision of at least six months' written notice. Leaseback arrangements entered before 2010 will require council to provide at least 12 months’ notice.

Council does, however, reserve the right to terminate or suspend access to a leaseback vehicle immediately in the following circumstances:

  • termination of employment
  • loss of licence
  • serious breach of the leaseback agreement
  • if the employee accepts a new position with council that does not include leaseback access.

Council may also terminate or suspend the leaseback arrangement with two weeks’ notice when an employee is demoted (for the period of the demotion).

Where an employer supplies an employee with a zero or low-emissions vehicle the leaseback vehicle fee payable by the employee should reflect favourable Fringe Benefits Tax treatment where applicable.

While the provision of a leaseback vehicle may be an attractive option for council to reward employees, a sound understanding of the costs involved and the operation of Fringe Benefits Tax are needed to ensure the parties can effectively manage the arrangement. 

Mateo Lopez is an Industrial Officer at Local Government NSW.

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