Be aware of FBT obligations when salary packaging
Salary packaging is an arrangement between an employer and employee for the employer to provide certain benefits to the employee or associate of the employee in lieu of cash.
A typical example includes salary sacrificing into super. Employees might also package their salary for other non-cash benefits, which unlike super, may be subject to Fringe Benefits Tax (FBT).
1. Concessional employers
Employers are liable for FBT not the employee. Employers will ordinarily pass on any FBT to the employee by way of a reduced salary package. However, some employers receive concessional FBT treatment which can benefit their employees.
Fringe benefits provided by certain employers receive concessional treatment subject to a cap. The following organisations are exempt from paying FBT where the grossed-up taxable value of fringe benefits provided to each employee is less than or equal to the capping threshold:
- Public benevolent institutions
- Charitable institutions
- Public and non-profit hospitals
Tip: If you have multiple employers, for example, Medical Doctors working for multiple hospitals, you may benefit from multiple threshold caps.
Note the value of the non-cash benefit is ‘grossed-up’ to reflect how much someone on the top marginal tax bracket (including Medicare levy) would need to earn to purchase the same benefit after tax.
Employees of these organisations who salary packaging up to their relevant cap can effectively increase their tax-free threshold.
2. Salary packaging non-cash items such as a car and salary sacrificing to super
A question that often arises is whether someone’s concessional super contribution cap is impacted if they salary package into a non-cash benefit like their mortgage or novated car lease. Salary packaging income for non-super benefits
does not reduce your concessional super contribution cap. This means if you are currently salary packaging you may also benefit by salary sacrificing part of your salary to super.
Arrangements must be made before remuneration is earned. This is particularly important to remember when expecting a future ‘bonus’. If it is intended for part of a future bonus to be salary packaged it is important that the arrangement be entered before it is accrued.
For more information please discuss with your financial adviser and your payroll office who may assist you with exploring your salary packaging options.
Our financial advisers Bruno Tjelder and Damon Zischke and OBT Financial Planning Pty Ltd are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.