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Salary Packaging

Salary Packaging

Salary Packaging can be tricky. There may be FBT implications and you might not be making the most of the opportunity.

Recently we have had quite a few inquiries about salary packaging. There are a few things to know before you jump in and this article gives you the basics.

Introduction to Salary Packaging

What is Salary Packaging?

Salary Packaging describes the structure used to pay employees with cash, as well as a variety of alternative payments, known as Fringe Benefits. The employee has the flexibility of choosing how they wish to take their salary.

 

The income sacrificed in return for fringe benefits is not subject to Income Tax, so the employee usually receives a saving in tax payable had their salary been taken wholly in cash.

 

This saving, however, is partly or wholly, offset by any FBT applicable to the Fringe Benefit (currently 46.5%). This can be re-charged to the employee.

 

What are the benefits of Salary Packaging?

It is most beneficial for those employees on the highest marginal tax rate, as the lower salary level after sacrificing may represent a considerable savings in tax payable.

 

It can also be a means of retaining staff, as the flexibility it offers may appeal to employees. It is widely recognised as being a factor in increasing employee satisfaction and motivation.

 

There are a number of “exempt” benefits which can be offered to employees, for which there is no fringe benefits tax applicable.

Definition of a Fringe Benefit

Benefits that are provided as part of salary package arrangements (Refer FBTAA s136(1) are:

  • Provided to an employee or associate of an employee (e.g. spouse);
  • Provided by the employer, as associate of the employer or another person under an arrangement with the employer; and
  • Provided in respect of the employee's employment

Exempt Benefits

  • Superannuation
  • Laptop computers
  • Mobile phones
  • Briefcases, protective clothing, calculators, tools of trade, trade & professional subscriptions, airport lounge memberships, memberships of corporate credit card schemes
  • Taxi travel
  • Parking on employer's premises (small business)
  • Recreational facilities or child care facilities on employer's premises
  • Other deductible benefits

As in all matters of tax advice, please see your Registered Tax Agent to assess the benefit of salary sacrificing in light of your personal circumstances. The information contained in this article is correct at the time of publishing but you should check to see what changes may have occurred. As always, if OBB can help, please let us know.