Packaging happiness

In the third of a six-part series, Gary Kleyn considers non-monetary means of attracting and keeping quality staff.

WHILE nothing is sweeter than cash in the hand at the end of the week for many employees, for others an employer can offer salary packages that remove some of the financial hassles and frustrations from their employees.

This method may also come with attractive tax benefits for the employer.

Sacrificing part of the salary can make a significant difference to an employee’s tax return, where the tax payable on a salary is reduced. While Fringe Benefit Tax and the Goods and Services Tax have taken away some of the shine, salary packaging consultants say that with a little thinking, both the employer and their staff can come out better off.

Salary packaging involves choosing regular expenses and paying for them from pre-tax, rather than after-tax salary.

While, in theory, the salary package could include anything from paying for the employees lawn to be mowed each week to having an annual holiday paid for, it is typically used to provide the staff member with a vehicle – normally through a novated lease that can also include all running costs.

Motor vehicles are concessionally treated for FBT so it is subject to a lower rate of FBT.

Therefore, depending on the employee’s gross salary, providing a motor vehicle many be an attractive benefit.

Other items that are either exempt or concessionally treated for Fringe Benefit Tax include things an employee may not be able to claim as an income tax deduction if they were paid with a traditional take-home salary such as laptop computers, car parking, briefcases, in-house employer provided childcare or in-house gym membership.

Another thing that provides an attraction for salary packaging is that those benefits that an employee may be able to claim as an income tax deduction if they were paid for with take-home salary.

These include self-education expenses, salary packaging of financial advice expenses, income protection insurance, interest payments on investment loans, home office expenses, membership fees of professional organisations and travel expenses.

Finally, superannuation contributions paid by the employer are not subject to FBT.

Therefore, by increasing the amount of superannuation paid, the amount of taxable income falls, which can provide significant tax savings.

While the employee benefits through less paperwork and a reduced taxable income, employers benefit by providing improved staff retention and it helps organisations in their bid to become an employer of choice.

In the example provided by (see image above), through salary sacrificing, an employee is receiving $12,500 worth of benefit, that is costing him just $6,625 (post-tax dollars).

This means that the employer is effectively funding almost half of the benefit out of tax that would normally be paid to the Australian Taxation Office.

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