Getting FBT to work for you
ELISE has asked: I recently changed jobs and my employer provided me with a list of things that I can choose to salary sacrifice. I am not sure whether some of these things are really beneficial and just what some of them are.
The concept of salary sacrificing is you agree to take less salary for receiving a benefit in kind. Less salary means you pay less tax; the amount of saving depends on whether your employer pays FBT ( and how much). The FBT the employer pays is passed on to you as a cost to provide that benefit.
Some of the most common fringe benefits include a motor vehicle, super, mobile phone, laptop, conference costs, professional membership and airline club membership. These are popular as they either have a reduced tax value or can be exempt – giving you a true tax saving.
Not all provide you with a tax saving because if you paid for the item you may get a tax deduction anyway. Therefore salary sacrificing of those “otherwise deductible” items only provides you with a timing benefit ie; reimbursement now rather than when you lodge you tax return.
“Otherwise deductible” benefits include professional memberships, airline club memberships and conference costs.
Specifically exempt benefits include super contributions and the following: laptops, mobile phones, and Epads/ iPads used predominantly for work.
A car benefit can be calculated using the statutory method ( now 20%). The rate is applied to the cost of the initial purchase of the car to determine the value to which a gross up amount is applied to determine the amount of the fringe benefit. Your employer then pays FBT at a rate 49% of the fringe benefit. A common strategy ( employee contribution method) is for the employee to pay an amount to their employer from their after tax wage to reduce the fringe benefit resulting in an effective tax rate equal to your marginal tax rate, rather than the 49% FBT rate.
Remember though any tax saving is premised on the idea you would have bought the vehicle anyway.
Email questions to D a v i d . H a l l @ c r o w e h o r - wath. com. au
This advice is general in nature, the personal opinion of the writer; readers should seek specialist advice before making decisions.