With the end of the 2013 Fringe Benefits Tax (FBT) year approaching on 31 March 2013, it is a good opportunity to take advantage of the last 4 weeks as well as plan for the coming FBT year. There are also income tax benefits that can help the overall tax position for the income tax year ending 30 June 2013.
What is FBT?
Fringe Benefits Tax is a tax on benefits provided by an employer to an employee or the employee’s associate (e.g. spouse). Examples of benefits include car benefits, meal and entertainment benefits, loans to employees and their associates and accommodation benefits.
When FBT was legislated in 1986, it was described as “the end of the long lunch”, because whereas boozy lunch business meetings were previously deductible, FBT now taxed them.
How does Salary Packaging work?
Salary packaging is the process of using gross or pre-tax salary to pay for various expenses, which reduces the amount of PAYG withholding withheld from the salary, and increases the overall take home pay for the employee.
A common example of salary sacrificing is the choice to put extra money into superannuation.
Example An employee is on a salary of $120,000 plus 9% superannuation. This provides a monthly pre-tax salary of $10,000, or $7,153 in take-home pay.
The employee chooses to salary sacrifice an extra $1,000 per month into superannuation. This reduces the monthly pre-tax salary to $9,000, and the take-home pay to $6,539.
This has reduced the employee’s take-home pay by $614, however an extra $1,000 has been contributed to superannuation.
Once taking into account the tax on the super contributions, the employee is $236 better off per month.
Although FBT taxes benefits provided to employees, there are opportunities in the way that benefits are calculated, and from various exemptions.
Other packaging options
Salary packaging can also be extended to various fringe benefits which have concessional FBT treatment.
Car benefits, work related items such as laptops and other portable electronic devices, and other expenses that would be otherwise deductible for the employee in their own name, can also provide suitable options for salary sacrificing or salary packaging.
How do I take advantage?
Even if you run your own business, you can still take advantage where you can be employed through a company or trust.
If you are an employee, or business owner, speak to Value Beyond or your pay office to work out what benefits you may be able to gain through effective salary packaging.