Nick Bruining: The good (and bad) tax implications of talking fringe benefits in lieu of a better salary

For some employees, special fringe benefit tax concessions available to their employer means salary packaging becomes a no-brainer, but it can still have a significant impact on your personal tax situation. Special rules apply to people who work for certain public benevolent institutions such as hospitals, churches and charities. North Perth accountant Phillip Sieber said fringe benefit concessions were particularly useful for eligible not-for-profit organisations. “The idea behind the tax break is to allow not-for-profit organisations to attract and retain high calibre staff by providing fringe benefits in lieu of high salaries,” Mr Sieber said. These special rules look at how the money might be used by the employee and allows some employers to provide these “end use items” as a fringe benefit. Such expenses can include mortgage repayments, rent, meals, travel, entertainment and general living expenses. There are two categories of organisations that can offer FBT-free benefits. Nurses and other staff employed by public and not-for-profit hospitals and public ambulance services sit in an employer category which can package up to $9010 a year, plus an additional $2650 for meals. Employees of registered public benevolent and health promotion charities have a higher limit of $15,900 a year, though the list of eligible FBT-exempt expenses isn’t as vast. Mr Sieber said employees eligible to access these concessional arrangements should also remember that in most cases the value of the fringe benefits provided is reportable. This means it will appear on your end-of-year Pay As You Go summary, along with salary-sacrificed concessional contributions to super and your gross wages. “It forms part of the adjusted taxable income figure that determines your entitlements to a range of income-tested benefits and in some cases extra tax,” he said. “What many people don’t realise is that they use a different value called the ‘grossed-up figure’.” A worker who has maxed-out their fringe benefits in the health sector, for example, is likely to see a grossed up reportable fringe benefit value of $17,000 on their PAYG summary in exchange for their actual $9100 in fringe benefits. If you’re in the charitable sector, the grossed up value could be as high as $30,000. This could, for example, result in an extra 15 per cent contributions tax for concessional contributions to super, if the adjusted taxable income figure exceeds $250,000. “Depending on other household income, it might also make you ineligible for government-subsidised paid parental leave or family tax benefits,” Mr Sieber said. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association