Salary Packaging for Not for Profits

Under new tax rules the idea of “salary packaging” for employees in the Not for Profit sector may sound all too hard. However our expert in this area offers some guidelines and advice.

Anton Gaudry, who specialises in salary packaging for Not for Profits says all public benevolent institutions (PBIs) and FBT rebatable employers such as associations, schools and community groups should consider offering employees a choice of fringe benefits as part of their remuneration.

Under the tax laws, Gaudry says there is a great opportunity to mix and match “salary” for an equivalent amount of “fringe benefits”.

Gaudry says as an example that for taxation purposes, the employee pays the tax on “salary”, but the tax on fringe benefits is actually paid by the employer, subject to special concessions only available to Not for Profits.

He says one of the tax concessions allows organisations to provide each employee a certain level of fringe benefits without the payment of fringe benefit tax (FBT).

This means that an employee can have a salary package that substitutes salary for fringe benefits without the payment of FBT.

Similarly, fringe benefits are not subject to income tax, however the tax office has set a dollar limit on the concession of up to $30,000 per Not for Profit employee ($17,000 for hospitals).

The tax rates on salary and other income is:

Income Tax on Income * Tax Rate
Up to 6,000 Nil 0
6,000 – 20,000 2,380 18.5 %
20,000 – 50,000 11,380 31.5 %
50,000 – 60,000 15,580 43.5 %
60,000 + 15,580 + 48.5 %

* Does not include Medicare Levy.

Gaudry says if you substitute salary for fringe benefits, no tax is paid on the fringe benefits up to the limit and this only applies to Not for Profits.

Here’s an example: If your salary is $30,000, the amount above $20,000 (ie. $10,000) is taxed at your marginal tax rate (ie. 31.5% as per table). Therefore, for the salary amount above $20,000, the after tax amount is only $6,850 (ie. $10,000 less $3,150 tax). By ‘salary packaging’ this $10,000 (eg. the amount is now paid directly off your mortgage or credit card), your remuneration becomes $20,000 salary and $10,000 in fringe benefits (total $30,000, same as before). However, you are NOT taxed on fringe benefits and you save $3,150 in tax. Therefore, the after tax value of your remuneration increases by $3,150.

Put simply, salary-packaging means substituting “salary” for “fringe benefits”.

Gaudry says Not for Profits should allow employees to maximise their after tax income or “take home pay” through the use of salary packaging.

You can contact Anton Gaudry at anton@taxmadeeasy.com.au.

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