As everyone has different financial and personal circumstances, salary packaging will be more advantageous for some than others. The first question to ask yourself when considering salary packaging is this; what range of benefits is my company offering in lieu of salary and do I need or want any of these benefits? If you would be buying these benefits anyway from after tax salary then chances are you can make a significant saving by packaging. Please call our office if you would like to know more.FAQ; What is Fringe Benefits Tax (FBT)?
When replacing a portion of a cash salary for non-cash benefits, income tax may be replaced with Fringe Benefits Tax (FBT) as the applicable tax for the new benefits. Most allowable salary packaging items are FBT exempt. FBT is not payable on laptops, tools of the trade, software if these are pre dominantly for work purposes as these are exempt benefits. FBT is not paid on additional superannuation payments made to the employee’s complying super fund account as these are not treated by the Australian Tax Office as fringe benefits. FBT is payable on motor vehicles but can be negated by using the employee contribution method. There are two methods for calculating FBT on motor vehicles, the Operating Cost Method and the Statutory Method. In most cases the Statutory Method is the appropriate choice. Using this method the amount of post tax employee contribution is based on 20% of the value of the car. By making this post tax contribution to the lease payments the employee is reducing any FBT liability to zero.
FAQ; What are Employee Contributions?
FBT on motor vehicles can be reduced to zero using employee contributions. This is where a portion of the running costs of the vehicle are paid for by the employee from after tax dollars. Rather than the employee paying for actual car expenses, an amount is deducted from each pay during the FBT year (1st April – 31st March) to ensure the employee has paid enough to reduce the FBT to zero. The amount required to be paid depends on the value of the car.
FAQ; What effect does salary packaging have on my Payment Summary?
Your Payment Summary (previously referred to as a Group Certificate) will show your reduced gross wage for income tax purposes. In some cases the benefits you have received will appear on your payment summary in a separate section called Reportable Fringe Benefits. There is no tax to be paid on this amount, however it is reported to help calculate various income tests including liability for the medicare levy surcharge, entitlement to superannuation co-contributions, child support obligations and HECS repayment income. Note however, that if employee contributions are made by the employee to reduce the FBT to nil, then nothing will appear on the Payment Summary in relation to the benefit.
FAQ; What if I change Contractor Management Companies?
All salary packaging arrangements will cease and your salary packaging account will be settled in your last pay. If the actual costs paid are less than the deductions made from your salary you will be paid the balance. (which will be taxable income) if the opposite is the case you will have a deduction from your pay.
If you had a novated car lease in place this will revert to a regular finance lease between you and the lease company. This means you will become responsible for making the lease payments and paying all the running costs yourself. When you find a new job the lease can be re-novated and the lease payments and running costs can be paid by your new employer. It is important to clearly negotiate your new salary package before accepting your new position as different employers will have varying packaging policies.
FAQ; What is a Novated Lease and how does it differ from a regular finance lease?
A novated lease is a regular finance lease with a deed of novation attached. This deed states that while novated, all rights and obligations under the lease will transfer to the employer with the exception of the residual which remains the employee’s cost when the lease expires. If employment ceases the deed of novation is no longer valid, hence the lease becomes a regular finance lease with all rights and obligations reverting back to the employee.
FAQ; If I salary package a motor vehicle via a novated lease, do I have to insure my car?
Most finance leases, whether novated or not, will require comprehensive motor vehicle insurance. Some will require the finance company to be named as an interested party on your policy.