What You Need to Know About Salary Packaging in 2017

Salary packaging is often referred to as salary sacrifice. It a method approved by the Australian Taxation Office (ATO) for employees to receive benefits via a pre-tax salary payment. The employer and employee agree that the remuneration will be a combination of cash salary and non-cash benefits.

The benefit types that can be sacrificed have restrictions and they must be part of the employee's remuneration as a replacement of what would normally be paid as part of their wages. Usually salary packaging offered by employers includes exempt benefits, concessional benefits, otherwise deductible items (which can be deducted in your tax return), expense payment benefits, capped benefits provided to health workers, charities and non-for profit employers and a range of residual fringe benefits.

Employer Benefits for Salary Packaging

Your employees receive tax advantages and an increase in their take-home pay, but there are also employer benefits including:

  • Staff retention, which results in a lower staff turnover, refined employees, and reduced employee training.
  • Employees can be rewarded for their hard work with minimal effort by the employer.
  • In the employees' eyes the company will be worth more.
  • Employee take home salary is increased but the employer has no extra salary costs.

Changes to Meal Entertainment rules for 2017

Prior to the changes introduced for the 2017 year, meal entertainment and entertainment facility leasing expenditure (EFLE), was excluded from capping thresholds. On 1 April 2016, a separate single gross-up cap of $5,000 was introduced. This cap would apply in addition to existing caps. 

Of significance though, is that where the meal entertainment benefit or EFLE is salary packaged, it will be included in the capping thresholds of $31,177 or $17,667. Were the capping threshold is exceeded the additional $5,000 is available for meal entertainment benefits and EFLE. For 2017, all salary sacrifice entertainment benefits will be reported as fringe benefits. This will apply to employees of:

  • Health promotion charities
  • Public hospitals
  • Not-for profit-hospitals
  • Public ambulance services
  • Public benevolent institutions

Changes to Super Contributions for 2017/18

Super contributions made under a salary sacrifice arrangement will be reported as concessional contributions and they will count towards your superannuation contributions cap. 

For the 2017/2018 year, the concessional cap is as follows:

  • $25,000 for all contributions and ages.

Taxi travel and UBER travel, what are the key differences for FBT purposes?

By way of a background, an employer is entitled to claim exemption in respect of taxi travel provided to employees, if it is for a single trip, beginning or ending at the employers’ place of work. Taxi travel is further defined as being “in a motor vehicle that is licensed to operate as a taxi”. The employer would be required to ensure that UBER is licensed to operate as a taxi in that State in order to get the exemption.

Employer Rules for Salary Packaging

To receive the benefits of salary sacrificing – for both employer and employee, the employer must have a salary package arrangement in place where:

  • The salary packaging arrangement must be prospective. This means that it must be in place before the benefit is provided to the employee.
  • There is a written agreement between employer and employee. The contract should be clearly written and both parties need to agree with all terms. If an undocumented salary packaging arrangement is entered into, then establishing the facts of the agreement can be difficult. This is subject to the terms of any employment contract so it can be renegotiated at any time.
  • The salary sacrificed has to be permanently foregone for the period of the arrangement. The salary sacrifice is not meant to be made with the intent to defer earning. The amount cashed out would have to be taxed at PAYG rates.

Salary packaging can benefit both employees and employers, but it is important that you know what the rules are and follow them accordingly. For more information on salary packaging contact easifleet.

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