Salary Packaging Opportunities For Not-For-Profit Entities

Registered charities and certain not-for-profit entities are granted an FBT rebate of 47% (meaning that their FBT rate is effectively 24.91%).    What this means is that it can be beneficial for employees of these organisations to salary package items into their remuneration package to improve their overall after-tax cash position.

Take the following example of an employee of a not-for-profit entity on a salary of $80,000 that wishes to salary package $13,000 of mortgage repayments $2,000 (GST inclusive) of entertainment expenses, and a $2,500 (GST inclusive) laptop used primarily for business purposes:

No Salary Packaging

Salary Packaging

Remuneration consists of:
    • Salary

$80,000

$55,763

    • Benefits paid by employer (net of GST)

$17,091

    • Cost of Fringe Benefits Tax on benefits provided by employer

$7,146

Total remuneration

$80,000

$80,000

Net cash position of employee:
Salary

$80,000

$55,763

Less income tax

($16,987)

($8,462)

Less after-tax cost of mortgage repayments

($13,000)

Less after-tax cost of entertainment expenses

($2,000)

N/A as salary packaged

Less after-tax cost of laptop

($2,500)

N/A as salary packaged

After tax net cash position

$45,513

$47,301

SAVINGS BY SALARY PACKAGING = $1,788

 

The above example illustrates that the employee improves their after-tax cash position by $1,788 by salary packaging.

In comparison, if the employee was not offered salary packaging, they would need to receive a salary of around $83,000 in order to achieve the same after-tax cash position as if salary packaging was available to them.

Effectively, salary packaging is the process of switching from salary (taxed at the marginal rate of the employee) to fringe benefits (taxed at 24.91% if the employer has access to the FBT rebate).  Therefore, the benefits of salary packaging would increase as the employee’s salary increases.

There are many types of items that employees may wish to salary package.  These include car leases, entertainment, rent, mortgage repayments and car parking.

If you would like to explore offering salary packaging to your employees, please do not hesitate to contact Tim Olynyk at Banks Group on 9810-0700 or at t.olynyk@banksgroup.com.au.

 

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