Salary Packaging benefits for greater overall remuneration
Salary Packaging involves restructuring your salary by choosing to receive your salary as a combination of cash and approved fringe benefits that are paid out of your pre-tax salary.
It simply allows you to elect to take part of the salary as a noncash benefit rather than take home pay. Benefits received in lieu of cash salary are not assessable under the PAYG system and are taxed in accordance with the Fringe Benefits Tax (FBT) Act.
A number of benefits are either exempt from FBT or are treated concessionally for FBT purposes and may provide the employee with a tax advantage by taking the benefit rather than salary. The level of benefit is dependent upon the employee's marginal tax rate.
Employees can customise their Salary Package by choosing benefits that best suit their individual needs. Salary Packaging provides individuals with the option of including a range of benefits that offer both convenience and the advantage of using their income more effectively. Salary Packaging is not compulsory and may be entered into or cancelled at any time.
There is no restriction on the types of benefits that can be sacrificed. The important thing is that these benefits form part of your remuneration, replacing what otherwise could have been paid as salary. The types of benefits generally provided in salary sacrifice arrangements by employers include fringe benefits, exempt benefits and superannuation.
Common Fringe Benefits
- cars
- property (including goods, real property such as land and buildings, and shares or bonds), and
- expense payments (such as the payment of your loan repayments, school fees, child care costs and home phone costs).
Types of Exempt Benefits
A number of benefits are exempt from FBT. The following work-related items commonly provided in salary sacrifice arrangements are exempt benefits:
- a portable electronic device
- an item of computer software
- an item of protective clothing
- a briefcase
- a tool of trade.
The work-related items exemption is limited to:
- items primarily for work-related use
- one item per FBT year for items that have a substantially identical function unless the item is a replacement item.
Superannuation
Salary sacrificed superannuation contributions under an effective salary sacrifice arrangement are considered to be employer contributions which, when paid in respect of an employee to a complying superannuation fund, are not fringe benefits.
However, superannuation contributions made for the benefit of an associate, such as your spouse, are a fringe benefit. Similarly, contributions paid to a non-complying superannuation fund will be a fringe benefit.
ATO Car Example:
Sam, who earns $65,000 a year, is considering entering into an effective salary sacrifice arrangement. Under this arrangement his employer will provide the use of a $35,000 car and pay all the associated running expenses of $11,500.
The salary packaging provider calculates that:
- the taxable value of the car fringe benefit will be $3,850 if the car travels between 25,000 and 40,000kms in the FBT year, and
- Sam will sacrifice:
- $14,205 if no employee contributions are made, or
- $7,009 if employee contributions of $3,850 are made.
The following table illustrates how salary sacrificing and employee contributions work by comparing the net disposable income for Sam in three scenarios.
- no salary sacrifice arrangement
- a salary sacrifice arrangement without any employee contributions, and
- a salary sacrifice arrangement where employee contributions are provided.
|
Salary only (no packaging) |
2. Salary + car (without employee contributions) |
3. Salary + car (with employee contributions) |
|
|
Annual remuneration |
$65,000.00 |
$65,000.00 |
$65,000.00 |
|
Less salary sacrifice |
$NIL |
$14,205.00 |
$7,009.00 |
|
Taxable income |
$65,000.00 |
$50,795.00 |
$57,991.00 |
|
Less income tax (2008-09 rates) |
$13,500.00 |
$9,238.50 |
$11,397.30 |
|
Less 1.5% Medicare |
$975.00 |
$761.92 |
$869.86 |
|
Income after tax / salary sacrifice amount |
$50,525.00 |
$40,794.58 |
$45,723.84 |
|
Less employee contribution |
NIL |
NIL |
$3,850.00 |
|
Less car expenses |
$11,500.00 |
$NIL |
$NIL |
|
Net disposable income |
$39,025.00 |
$40,794.58 |
$41,873.84 |
|
Reportable fringe benefits amount for employee payment summary |
NIL |
$ 7,196.00 (car fringe benefit taxable value of $3,850 x 1.8692 |
NIL |
For more details, please contact your SymbionHR representative.
