FBT Workshop Notes
Salary Sacrifice
A salary sacrifice arrangement is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value. A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging.
An effective salary sacrifice arrangement is an arrangement between an employer and an employee detailing the amount of salary or wages income to be sacrificed. It has to be retro-spective, ie the arrangement needs to be in place prior to the work completed.
Employees can renegotiate a salary sacrifice arrangement at any time.
Any benefit entitlements that are provided by way of cash payments of benefits may form part of normal salary and wages and will therefore be taxed as normal income.
Fringe benefits provided in salary sacrifice arrangements are often car fringe benefits and expense payment fringe benefits, such as payment of an employee’s loan repayments, school fees, child care costs and home telephone costs.
Superannuation contributions made under a salary sacrifice arrangement to a complying superannuation fund for the benefit of an employee are not fringe benefits. Where such contributions are paid for the benefit of an associate, such as a spouse, they are considered to be a fringe benefit.
The FBT year is the 12 months beginning 1 April and ending 31 March.
Rate of tax
The rate of FBT may vary from year to year but the Tax Office will advise of the rate each year. Currently, the FBT rate is 46.5%.
Steps to determine FBT Liability and calculations:
Establish who is receiving Salary Sacrifice within the organization.
Is the organization recognized as a PBI – if yes then grossed up capping threshold of $30,000 relates.
Calculate the net payments for each individual by looking at what was sacrificed and to whom the sacrifice was made. – 01/04/07 – 31/03/08
Determine whether the payments have been made to items with GST incurred (GST-creditable benefits). If so the net payment needs to be multiplied byType 1(the higher type) rate being 2.0647 (for FBT year ending 31/03/08) this calculation is for reporting purposes only, and is not the calculation for the group certificates (payment summaries).You need to do this calculation for audit purposes to show that each staff member has not gone over the capping threshold of $30,000.
This Type 1 figure needs to be used (2.0647) regardless of whether the organization claims the GST credit back, (from the ATO perspective the organization is entitled to make the claim, if the organization chooses not to, due to information data collection etc they are still entitled to the claim, therefore making it necessary to use the higher figure 2.0647 as opposed to Type 2 being 1.8692).
For the payment summaries you need to calculate the amount of salary sacrificed multiplied by the lower gross up rate Type 2 being 1.8692 (for FBT year end 31/03/08).
Example
Sally sacrificed $595 per fortnight into $195 to her debit card (expenses with GST)
$200 education expense (no GST)
$200 rent for her personal residence(no GST)
$595 x 26 wks $ 15,470
ATO reporting purposes 195 x 26wks $ 5,070 x 2.0647 = 10,468.29
400 x 26 wks$10,400 x 1.8692 = 19,439.68
= $29,907.71
(under the $30,000 capping threshold)
For Payment Summary calculation:
$595.00 x 26 weeks $15,470 x 1.8692 = $28,916.52 rounded to $28,916
This amount is to be written up on the group certificate/payment summary.
If the amounts being sacrificed are paid into items that don’t incur GST, then the amount paid per fortnight can now be $16,049.65. ($30,000 / 1.8692).This needs to be divided by the number of pay periods in the period from 1st April 07 and 31st March 08 to calculate accurately the amount to be sacrificed every pay period and remain under the capping threshold.
If the amounts being sacrificed are paid to items that incur GST, an individual calculation will need to be as shown above on the amounts subject to GST to establish the correct amount eligible to be paid per pay period.
For ease of calculation and surety in remaining under the capping threshold it is suggested that organizations recommend only non-gst salary sacrifice payments or alternatively calculate all payments at the higher Type 1 ratio.
General Recommendation on current rates,
$30,000 capping threshold divided by rate of 1.892 (non-gst creditable items)
$16,049.65 divided by 52 weeks (weekly pay period)
$308.65,
$16,049.65 divided by 53 weeks
$302.82
therefore recommend $300 per week sacrifice limit for items that don’t have gst.
$30,000 capping threshold divided by rate of 2.0647
$14,529.95 divided by 52 weeks
$279.42,
$14,529.95 divided by 53 weeks
$274.15
therefore recommend $ 270.00 per week sacrifice limit for items that have gst.