• What are the implications of an effective salary sacrifice arrangement for employers?

    FBT

    You may have FBT obligations when you enter into a salary sacrifice arrangement giving employees non-cash benefits.

    Assessable income

    The reduced salary amount specified in a salary sacrifice arrangement is the employee's assessable income.

    GST

    You may be able to claim an input tax credit for GST paid in providing the benefit if you are registered for GST. For expenses incurred to provide fringe benefits that are subject to GST and where you hold a valid GST invoice, you are entitled to claim the GST credit when submitting your activity statement.

    Employee contributions

    The taxable value of a benefit may be reduced through the payment of employee contributions. The amount sacrificed does not count as an employee contribution when determining the taxable value of any fringe benefits the employee receives. Employee contributions must be paid out of the employee's after-tax income.

    PAYG withholding and payment summaries

    PAYG tax withheld should be based on gross salary and wages paid and should not include salary-sacrificed amounts. The employee's PAYG payment summary should show the gross amounts of all salary and wages (excluding salary-sacrificed amounts) and the relevant total amount of PAYG tax withheld for the year.

    Where an employee's individual fringe benefits amount is more than $2,000 (that is, the equivalent grossed-up taxable value of $3,738), you must report the grossed-up value on their payment summary.

    What are the implications of an effective salary sacrifice arrangement for employees?

    Assessable income

    The employee pays income tax on the cash component of their salary package, not including the salary sacrificed fringe benefits.

    FBT

    You are liable for any FBT payable on the benefits received. The FBT payable is determined at the highest marginal income tax rate, including the Medicare However, you may ask the employee to contribute towards the FBT payable.

    See also:

    • Fringe benefits tax – rates and thresholds.

    Reportable fringe benefits

    If the total taxable value of certain fringe benefits received by an employee in an FBT year (1 April to 31 March) exceeds $2,000, you must report the grossed-up taxable value of those benefits on their payment summary for the corresponding income year (1 July to 30 June).

    As employees don't pay income tax on fringe benefits, the grossed-up taxable value of a benefit reflects the gross salary that would have to be earned to purchase the benefit from after-tax dollars. This is calculated at the highest marginal tax rate, including the Medicare levy.

    See also:

    • Fringe benefits tax – rates and thresholds

    The value of fringe benefits reported on a payment summary is known as the reportable fringe benefits amount.

    The reportable fringe benefits total is not included in the employee's taxable income and does not affect the amount of basic Medicare levy payable. It is, however, included in a number of income tests relating to government benefits and obligations.

    See also:

      Last modified: 04 May 2017QC 17808