No. It isn’t too good to be true. These highly sought-after smart devices are officially approved for salary packaging, so if you’ve been waiting for an excuse to buy one, read on. When most people think of salary packaging applications, they think of getting a work laptop or using pre-tax income to save on their mortgage, bills or other expenses. Most people don’t realise that you can salary package a range of work-related devices. When you get a smartwatch through salary packaging, it even comes with a big tick from the tax office. The main caveat, of course, is that you have to use your smartwatch for work purposes.
Getting a new smartwatch through salary packaging is going to cost you less than buying one at full retail price, but just how much? Let’s say in this example, your employer will purchase the smartwatch, then you will pay back your employer using your pre-tax income. In other words, your repayment amount will be deducted from your pay before you receive it and before tax is taken out.
This means the actual amount you save on the smartwatch will depend on your income tax rate. If you want a brand new stainless steel Apple smartwatch that is currently priced at $1,119 on the Apple site, your first saving is the GST. Your employer will cover this cost as part of the salary packaging agreement, so you’ll save 10% or $102 upfront.
If you’re on an income of $80,000 on a 37.5% tax rate, here’s how the cost is calculated:
Cost of smartwatch: $1,119 (RRP)
Your tax rate = 37.5%
Tax rate x RRP = $419.62
$1,119 minus $419.62
By paying for your smartwatch using salary packaging, your new smartwatch will only cost you $699.35.
You will be able to pay this in installments set up by your employer or salary packaging provider.
ATO Approved Technology
If that’s not enough of an excuse to finally get that smartwatch, enjoy approval from the tax office. In 2018, the ATO made a ruling that allowed a popular smartwatch to be deemed a portable electronic device for fringe benefits tax purposes under the following circumstances:
- The watch is provided in respect to employment and is used primarily for the employee’s employment; and
- The watch is not considered a second item purchased in the past 12 months that has a substantially identical function.
While the ruling was originally intended for Apple smartwatches, it now applies to both iOS and Android smartwatches.
Bundle Your Devices
Normally, two devices with identical functions can’t be packaged in the same FBT year. For example, you couldn’t package a smartphone and then decide you want a newer smartphone model in the same 12 months. In 2018, the Australian Tax Commissioner ruled that while a smartwatch has similar functions to that of a mobile phone, the functions between the two are substantially different due to the following considerations:
- The watch can receive and display text messages and emails, but sending/replying is limited to pre-set phrases or dictating a reply as an audio file.
- A keyboard cannot be used with the watch as it can with the paired phone.
- Purported seamless transition between the watch and phone when needing to utilise more complex functions.
- The watch cannot download or use the majority of mobile phone applications (ie apps). Only specifically designed applications work on the watch.
- The watch is not capable of viewing complex web pages on the screen, thus requiring the use of the phone in a lot of cases.
These limitations of the smartwatch were enough for the Commissioner to consider that the device was substantially different to the phone. Therefore, a smartwatch is eligible for an exemption where both devices are provided to an employee within the same FBT year.
This means you could salary package a smartwatch in the same FBT year that you’ve already packaged a laptop, phone or another work-related device.
Want a smartwatch? Let’s chat.
At The Salary Packaging People, we’ve helped thousands of employees save on a range of devices through salary packaging solutions. Contact us or call 03 5229 4200 to talk to someone today.