Salary packaging has been less attractive over the last few years with the higher FBT rate and restrictions being placed on some of the popular FBT concessions.
With the FBT rate change from 1 April 2017, it’s important to review all existing arrangements and make sure that everyone understands – employers and employees – what the package looks like once the rate decreases.
In general, salary packaging will become less expensive to provide once the FBT rate goes down again, so look for the opportunities to save.
For high-income earners earning above $180,000, you have a one-off opportunity to reduce your taxable income when the FBT rate is reduced from 1 April 2017 until the Debt Tax is removed on 30 June 2017 (see FBT rate change 1 April below). Just be certain that any arrangements put in place are executed correctly. The ATO will be looking closely at any packaging arrangements that drop an individual’s income below the Debt Levy threshold level.
Briefly, an effective salary sacrifice arrangement is one that:
- Forms part of the employee’s remuneration, i.e. the benefits are replacing amounts that would have been payable as salary.
- Is documented in writing. The employee needs to agree in writing to forgo a certain amount of income before that income has been earned, in return for benefits of a similar value. If the ATO want to clarify this point there will need to be documentation and a trail – paperwork and transactions – backing it up.
- Is not reimbursed to the employee’s bank account. The salary sacrificed amount needs to come out of the salary or wages.
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