With so many options available to salary sacrifice it can be difficult knowing what to include in your salary package. And with certain employer types having a cap on the amount to salary package before paying the full FBT tax rate, it can be difficult to determine which option is best to salary sacrifice.
Option #1 – Super
But this salary sacrifice option is limited to the current concessional contribution cap of $25,000 (as of this writing).
Option #2 – Exempt FBT Items
But what about the other items?
The next item to salary sacrifice would be any items that would otherwise be deductible on your income tax return which are exempt from FBT.
Some of these items may require you to declare that they will predominantly be used for work purposes, so if your work gives you a laptop or mobile phone then you might find it difficult to prove your new laptop and mobile phone are predominantly used for work purposes.
By salary packaging your work related items, it helps provide better cash flow in the present, rather than waiting for the income tax return. However, if something is tax deductible as a work related expense see if your employer can pay for it – this helps your cash flow a lot more!
Option #3 – Concessionally Taxed FBT Items
In the partially taxed group we have car leasing and this takes on several different types, with Novated Leasing being by far the most popular.
And what’s not to like about this option? You get to borrow money from a financier to purchase a car you really like and have the running costs of the vehicle salary sacrificed!
What’s even better about this deal is that you get to pay a balloon at the end of the lease (or you can extend the lease term further), and once you’ve paid the financier out you could sell the car for more than the balloon and pocket the difference.
However, there are other options available here, and one such hidden arrangement is the associate lease.
What is an associate lease?
Well the reason why they’re so popular is that several organisations make money from you with your simple car purchase.
Similar to the novated leasing arrangement, an associate of the employee leases their car to the employee’s employer and receives lease payments for providing their vehicle to the employee.
The associate collects the lease payment from the employee’s employer, through the employee salary sacrificing their pre-tax lease payments, and the associate declares this as income on their tax return.
The employer provisions from the employee’s pay the same amount of fringe benefits tax they would normally otherwise have withheld if the arrangement were a standard novated lease.
However, if the lease arrangement between the associate and the employee is a fully maintained associate lease, meaning the associate charges in the lease payment an amount to cover the running costs of the vehicle, there is provision for the running costs to reduce the FBT payable by the employee’s employer as these costs paid by the associate are deemed as recipient payments.
If a fully maintained associate lease arrangement is available for the employee as a salary sacrifice option then potentially there may be no need to pay FBT. It just depends on the taxable value of the car, the total running costs paid and some other factors.
“But my salary packaging provider doesn’t offer a fully maintained associate lease!”
The only unfortunate thing you’ll discover about the fully maintained associate lease is that salary packaging providers do not offer it. The reason for this is that there’s nothing for them to manage – it can easily be handled by payroll.
What you will tend to find with salary packaging providers offering “associate leases” is that it’s a novated lease where the financier is the associate.
This can still prove to be effective, but do be mindful you will have a portion of your salary withheld to pay the employee’s Fringe Benefits Tax.
Option #4 – Full FBT Charge
The last bunch of items that are neither exempt, or concessionally taxed with FBT are those who attract full FBT.
These items should only be entered if it mathematically makes sense to do so. Most of the time it wouldn’t be any different unless your employer is Exempt or Rebatable, but then you’d have to check how your current salary packaging arrangements are going towards breaching the limits.
If you want to get started with salary packaging then look first at seeing if you can put a bit more money into your superannuation.
From here look at items you can salary sacrifice, starting with exempt items then moving through to concessional before finishing at full FBT items.
Associate Leases certainly provide a great benefit, but this would depend on the associate (usually your spouse) and whether the additional income received will increase their tax. At least though, the old car you’ve got sitting in the driveway can help earn some additional cash!