August 21, 2018

Salary Packaging Worked Example – Rebatable Employers

Luke is currently employed by an Organisation which has the FBT Rebate. He is thus eligible to salary package up to $15,899.93 worth of GST Free fringe benefits per FBT year.

Luke wishes to salary package $15,899 onto a Community Salary Packaging General Expenses Card.

EXAMPLE

Luke is paid a total salary of $55,000 (plus superannuation). The tax Luke currently pays on $55,000 is $10,522 (including Medicare levy). This results in Luke receiving an after tax cash amount of $44,478 per year from which to pay all his bills and living expenses etc.

As Luke is employed by a Rebatable Employer, the $15,899 paid in general expenses (as fringe benefits) will result in an FBT liability of $7,473. (To understand more about this FBT amount please refer to the FBT Calculation for Rebatable Organisations.) Luke agrees to make before-tax contributions back to his employer to cover the applicable FBT liability.

After Luke enters in to the salary sacrifice agreement for his General Expenses, Luke’s new taxable salary is $31,628 ($55,000 – $15,899 – $7,473 ). The tax payable on this amount is $3,184 (including Medicare levy) leaving Luke $28444 in after tax cash.

The affect to Luke of salary packaging his general expenses is the difference between the tax paid on the original salary versus the tax paid on the reduced packaged salary LESS the amount of FBT contributions made to the organisation. This amount is -$135 [($10,522- $3,184) – $7,473].

Luke’s new total after tax salary package is now worth $44,343 ($28,444 + $15,899).

Luke is now $135 worse off from salary packaging his general expenses due to the amount of FBT contributions made back to his employer.

This is summarised in the table below:

Rebatable Employers

 

 

                                                                                                                                                                                                                                                                                                                 * These calculations do not consider the  effect of Salary Packaging on Medicare Levy Surcharge, HECS / HELP Payments,  Centrelink Benefits, Family Tax Benefits etc. It is recommended you receive  appropriate and independent financial and taxation advice before deciding to commence salary packaging.