The amount that you can salary package (also known as salary sacrifice) comes down to the type of organisation that you work for and their Fringe Benefits Tax (FBT) status. Basically there are four categories relating to the FBT status of an organisation. These are not-for-profit organisations, charities, public health and all other organisations which include government departments and private businesses. The FBT status of an organisation determines how much an employee can salary package. The amount that you can save through salary packaging depends on your salary and on what sort of Fringe Benefits entitlements you have.
What Are Fringe Benefits?
Fringe Benefits are benefits that employees receive in lieu of their wage or salary. Salary Packaging occurs when an employee exchanges wages for some form of benefit. Depending on your employer’s FBT status, as detailed in the previous section, FBT and Income Tax may not be relevant to what you salary package. Depending on your entitlements through your employer, you may be able to salary package living expenses such as mortgage or rent or meals and entertainment expenses or a motor vehicle lease.
Salary Packaging Caps & Fringe Benefits
Salary packaging caps are determined by the Commonwealth Government based on the FBT status of your employer. This can change from year to year depending on the tax policy and the administration of the Fringe Benefits Tax (FBT). The current FBT status by employer type and subsequent caps can be summarised as follows.
• Not For Profit Organisations
Not For Profit (NFP) organisations have the highest salary packaging cap and are entitled to the most benefits. They have an exemption of up to $15,900 in expense value and are exempt from paying FBT up to that cap. NFPs are also entitled to an additional meal and entertainment benefit of $2,650 each year which can be spent on entertainment and holidays. This category is also applicable to a Health Promotion Charity (HPC).
• Charities
Charities also have the highest salary packaging cap of up to $15,900 in expense value. However, they aren’t entitled to claim as many benefits as NFP organisations. Charities are not exempt of FBT but receive a rebate on the amount of FBT that is payable.
• Public Health
The Public Health System (including Ambulance workers) has a cap of up to $9,010 in expense value, therefore they are exempt of FBT up to this limit. Employees in this sector are also eligible to an additional exempt cap of $2,650 for meal and entertainment.
• Other Organisations
– All other organisations include private organisations and government departments. These organisations aren’t eligible for any Fringe Benefits Tax relief. Some benefits are exempt if they’re work-related, for example, work related electronic devices (laptop or mobile device) and self education expenses.
– There are no exemption for FBT for these organisations. Concessionally taxed benefits such as a Novated Motor Vehicle Lease or additional superannuation contributions are the most common benefits packaged.
– It’s up to these organisations if they choose to offer salary packaging or not to their employees.
Is Salary Packaging Worthwhile?
It depends on your organisation type and the impact that FBT has on the company that you’re employed by. The FBT rate is determined by the top marginal tax rate, for FY22-23 that’s 47 cents in every dollar. When a company has to pay the full FBT on salary packaging there may not be any benefit, as your tax rate may be less than the FBT rate.
If you are eligible for an exemption from FBT (up to your cap), the ability to pay some of your living expenses from pre-tax income rather than paying for them from your after-tax pay, the benefits can be substantial.
One thing to consider is that any of these benefits that are salary packaged, are reportable on your annual income statement. (previously known as Payment Summary or Group Certificate). The amount reported on your income statement is considered when the Government calculates the repayment of a HECS/HELP debt and/or any Government benefits that you’re entitled to. The impact of this is best checked with your employer or Salary Packaging provider.
Can You Salary Package Your Whole Salary?
You can salary package as much of your salary as you like, up to your cap. Depending on your industry and depending on if your organisation offers salary packaging. A Not For Profit has a $15,900 expense cap and this could be used for rent or a mortgage, a novated lease or a combination of things. As long as you’re within the cap you can structure salary packaging however you like.
When setting up your salary package you should consider how much will be left after tax is paid. This will be important in considering your own budget.
Are there Any Barriers to Salary Packaging?
Eligibility for salary packaging comes down to what type of organisation you work for. When you work for a private or government organisation it’s up to their discretion if they offer it and who they offer it to. For example, some organisations might only offer salary packaging to executives. The Health and NFP sectors may exclude casuals from salary packaging. There’s no regulation requiring employers to offer salary packaging, it comes down to a company’s own salary packaging policy. For organisations that are FBT-exempt, you’d think that it’s a no-brainer as to if they offer it or not. The reason they have the exempt FBT status is to assist them to recruit. Reward and retain staff from higher paying jobs at private organisations. Their employees can take advantage of a lower taxable income at no tax expense to their organisation.
Salary Package Today
The biggest barrier that prevents people from taking advantage of salary packaging is education. People tend to have differing ideas about what salary packaging is and isn’t. It’s important to have expert information and advice to get the most out of salary packaging. At The Salary Packaging People, we pride ourselves on taking a complex topic and providing clarity to our customers.
If you want to learn more about how you as an employer or employee can get the most out of salary packaging contact us today.