Re: salary packaging: in the 2014-2015 financial year




Дата канвертавання24.04.2016
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[Insert DD Month YYYY]





[Insert Client Name]

[Insert Client Position]

[Insert Company Name]

[Insert Company Address]

[Suburb State Post Code]

Dear [Insert Client Name]


Re: SALARY PACKAGING: IN THE 2014-2015 FINANCIAL YEAR

Background

Salary packaging is a process that allows employees to receive part of their remuneration in a form other than cash salary. In most situations, employees are offered the opportunity to forego part of their future entitlement to gross salary in return for the employer providing benefits of a similar cost to the employer. In order for a salary packaging arrangement to be valid, a contractual agreement, called a ‘salary packaging agreement’, must be entered into with your employer prior to the arrangement commencing.


Salary packaging can be tax effective for both employers and employees where the cost incurred by the employer in providing the benefit is less than what the employee would have incurred had they been paid salary and then purchased the benefit themselves from their net salary.
Over recent years, access to various fringe benefits tax exemptions and concessions by way of salary sacrificing have either been removed or restricted.
In addition, with the FBT rate increased to 49% from 1 April 2015, your salary sacrifice arrangements may need to be monitored to ensure they are still tax effective.

Is salary packaging attractive to employees earning less than the top income threshold?


Where the benefit being provided by the employer is a taxable fringe benefit, salary packaging still offers advantages to employees who are not in the top marginal tax bracket. While the increases in tax thresholds make salary packaging slightly less attractive, the benefits of salary packaging can still be maximised by the employee adopting an employee contribution strategy.
The following table summarises when an employee contribution strategy should be adopted in circumstances where the benefit being provided by the employer is a taxable fringe benefit.


From 2014-15 Taxable Income

From 2014-2015

$0 - $18,200

Employee contribution should be made.

$18,201 – $37,000

Employee contribution should be made.

$37,001 – $80,000

Employee contribution should be made.

$80,001 – $180,000

Employee contribution should be made.

$180,001 +

Employee contribution not required.

Employers should note that the ATO has recently increased its compliance activity in the area and should consequently ensure they have adequate procedures and policies in place to accurately capture and treat employee contributions and ensure amounts reported in their FBT return are treated appropriately for income tax purposes as well.


Salary packaging also remains beneficial where the benefit being provided by the employer has concessional FBT treatment (e.g. motor vehicles, eligible work related items*, employer superannuation support etc.).
* Following changes made in Tax Laws Amendment (Budget Measures) Act 2008, eligible work related items are only FBT exempt where they are acquired primarily for work related purposes. This change applies to all such items acquired on or after 7.30 p.m. on 13 May 2008. New measures have also been put in place whereby if an employee salary sacrifices an eligible work related item, they are denied a deduction for the decline in value of the asset.



Example


An employee earning $150,000 p.a. for the 2014-15 FBT year enters into a novated lease arrangement to acquire a family sedan costing $34,000 on 1 April 2014 (leased at: $9,070 per year GST inclusive). The employee travels 23,000 km during the year and has $4,400 (GST inclusive) in running costs.
The employee also chooses to package a new laptop computer valued at $2,500 (GST inclusive) and requests that an additional superannuation payment of $1,000 be contributed to their complying superannuation fund.
FBT on the car is calculated using the statutory formula method. No FBT is payable on the laptop computer (provided it is primarily used for work related purposes) or the additional superannuation contribution of $1,000. In the above scenario, the employee would be able to achieve an after tax saving of $2,837. By adopting an employee contribution strategy the after tax savings increases to $4,130 (refer to Appendix A for an analysis of the benefits of salary packaging to the employee).
While increasing the income tax thresholds is generally viewed as a positive for taxpayers, it diminishes the effectiveness of salary packaging taxable fringe benefits. However, with an employee contribution strategy in place and by salary packaging concessionally taxed and exempt fringe benefits, the benefits of salary packaging can be maximised.
To commence this review process, please do not hesitate to contact me on [insert telephone number of partner].
Yours faithfully
[Insert name of Partner]

Appendix A


Employee Remuneration

Employee Contribution Made

No Employee Contribution Made

100% Cash Salary

Cash Salary

$128,459

$116,743

$136,986

Employer superannuation contribution (9.5%)

$12,204

$11,091

$13,014

Packaged Benefit (i.e. cost to employer)










Benefit Cost – Car1

$6,064

$12,245

-

Benefit Cost – Laptop2

$2,273

$2,273

-

Benefit Cost – Superannuation3

$1,000

$1,000

-

FBT

-

$6,6484

-

Total employer cost

$150,000

$150,000

$150,000













Cash Salary pre-tax

$128,459

$116,743

$136,986

Less Income tax payable

(incl. 1.5% Medicare Levy)



($38,046)

($33,477)

($41,372)

Cash Salary after-tax

$90,413

$83,266

$95,614

Less Cost to employee of acquiring benefits where not salary-sacrificed

-

-

($16,820)

Less employee contribution

($6,800)5

-

-

Compulsory superannuation (Net of contribution tax)

$10,373

$9,427

$11,062

Benefit Value 6

$16,820

$16,820

$16,820

Total remuneration to employee after tax and employee contributions

$110,806

$109,513

$106,676


Note 1:

The cost to the employer of providing the car benefit is the GST exclusive value of the lease and running costs of the car (net of GST) less the GST exclusive value of any employee contribution:





Employee contribution made

No Employee contribution made

Cost of providing car:

- lease fees (GST excl.) $8,245



Cost of providing car:

- lease fees (GST excl.) $8,245



- running costs (GST excl.) $4,000

- running costs (GST excl.) $4,000

- employee cont. (GST excl.) ($6,181)

- employee cont. (GST excl) nil

Total $6,064

Total $12,245

The cost to the employer of providing a car benefit will also include the cost of the FBT. In this example this is shown as a separate line item.


Note 2:

The cost to the employer of providing the employee with a laptop is the GST-exclusive value of the laptop. In this case this is $2,500 x 10/11= $2,273.


Note 3:

Superannuation contributions will be taxed in the employee’s super fund at 15% provided it is a complying super fund.


Note 4:

FBT is calculated as follows:

FBT Payable = (Cost of car * statutory fraction#) * gross up factor * FBT rate

= $34,000 * 0.20 * 2.0802 * 47%

= $6,648
# The former tiered statutory fraction is being replaced progressively with a flat statutory fraction of 0.20 for new contracts entered into after 7:30pm 10 May 2011. Transitional measures will mean that this new flat rate will be progressively phased in over 3 years, such that a 0.20 statutory fraction will apply to employees entering new motor vehicle contracts after 1 April 2014 (regardless of distance travelled). For further details regarding the transitional statutory fractions applicable, please refer to the FBT Checklist.
Note 5:

The employee contribution is equal to the taxable value of the motor vehicle in order to reduce the FBT liability to nil. The taxable value of the motor vehicle is equal to the cost of the car multiplied by the statutory fraction. In this case this is $34,000 x 0.20 = $6,800.


Note 6:

The ‘benefit value’ is calculated as follows:




With Packaging



















Cost to employer

(i.e. car and laptop)




Input tax credit

Employee contribution

Additional Superannuation (Net of Superannuation Contribution Tax)

Value of benefit provided

Employee contribution made

$8,336

+ $834

+ $6,800

+ $850

= $16,820

No Employee contribution made

$14,518

+ $1,452

+ $0

+ $850

= $16,820


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