ABOUT CARRS

The Bad News
The Government has finally put a stop to the popular practice of using “nine to five” or “flip-flop” leases to avoid FBT on motor vehicles. From 1 April 2006 vehicles provided under such leases will be treated as company-owned vehicles for FBT purposes.

The effect is to remove the benefit of the employee (or a trust) owning the vehicle and leasing it to the company instead of the traditional practice of the company owning the vehicle and making it available to the employee.

The Good News
But there is still a way of getting expense deductions while avoiding FBT. How? By using our new system called CARRS – “Capital Adjusted Reimbursement Rate System”.

How does CARRS work?
CARRS bases itself on Automobile Association survey results for vehicle costs (information that IRD uses to justify FBT rates) but adjusting the information to use the latest petrol prices and to take depreciation out of the calculation. This is because tax law only allows reimbursement of “expenditure” and depreciation is a “loss”. We have also taken out AA’s average interest cost and allowed each CARRS user to plug in their actual interest cost. The system then calculates the relevant per kilometre reimbursement rate.

So What’s The Result?
By using CARRS there remains a significant advantage in the employee owning the vehicle if there is over 50% of business use. The major difference is that, where 9-5 leases allowed the owner to claim depreciation, no such claims are available under the reimbursement approach. However, if the employee leases the vehicle under an operating lease the lease payments (which of course factor in depreciation) are able to be reimbursed by the company.

Go to the CARRS Programme link to see a demonstration.