2018 Salary Packaging & FBT

Transcription

1 Paul Mather 2018 Salary Packaging & FBT FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

2 Our Core Services FBT Return Outsource Removing the annual FBT Return reporting burden so you can focus on what you do best. FBT Compliance Risk Review Are you paying too much FBT or too little? A risk review will identify risk areas and workable solutions. FBT Advisory and Consulting When you need advice on an FBT issue or require a strategy for implementing benefits. FBT Query Service Responding to your day to day queries in a timely fashion with practical advice. FBT & Salary Packaging Training Training on all aspects of FBT or Salary Packaging. Face-to-face, inhouse and webinar. Car Parking FBT Valuation Ensuring your compliant whilst minimising your FBT liability. Strategies to reduce the compliance burden. Logbook Solutions Helping employers to manage FBT costs on cars, car parking and fleet. Salary Packaging Solutions Outsourced salary packaging for all employers to meet employee needs.

3 Questions Rule for today.. : All questions are good questions, but only if you ask them! Happy to receive questions later! paul.mather@fbtsolutions.com.au

4 Agenda FBT The FBT Refresher What s new? Taxi v Uber Employee travel expenses The FBT test The challenge with names Motor Vehicles Key Learnings Salary Packaging What s it all about? Did Keating get FBT wrong? What s left in packaging? Cars Car Parking Relocations Portable Electronic Devices Other suitable benefits

5 Paul Mather 2018 FBT FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

6 FBT Refresher Employer tax & multiple employer types with different rules Tax on non-cash fringe benefits and certain allowances (LAFHA) Annual FBT return 31 March year end FBT grouping provisions do not exist 13 benefit categories Multiple valuation methodologies, concessions, reductions, exemptions Type 1 benefits GST charged (cars, car parking, entertainment, gifts) Type 2 benefits no GST charged (loans, health insurance, gift vouchers) Type 1 = $100 x x 47% = $98 FBT less GST of $9 = $89 NET Type 2 = $100 x x 47% = $89 FBT Tax on Tax - benefits valued on a GST inclusive basis Reporting on employee payment summaries ($2,000 threshold) Interaction with other taxes: Income Tax, GST, Payroll Tax + Workcover Understanding FBT

7 Paul Mather What s new? FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

8 FBT Exempt and Rebatable Employers FBT Year PBI & HPC Cap & Rebatable Grossed Up Type 1 TV Type 2 TV Type 1 Type 2 Additional Additional Entertainment Entertainment $5k cap $5k Cap 2015 $30,000 $14,421 $15,899 Unlimited Unlimited 2016 $31,177 $14,525 $15,900 Unlimited Unlimited 2017 $31,177 $14,525 $15,900 $2,330 $2, $30,000 $14,421 $15,899 $2,404 $2,650 FBT Year Hospital & Other Cap Grossed Up Type 1 TV Type 2 TV Type 1 Additional Entertainment Type 1 Additional Entertainment $5k cap $5k cap 2015 $17,000 $8,172 $9,009 Unlimited Unlimited 2016 $17,667 $8,231 $9,010 Unlimited Unlimited 2017 $17,667 $8,231 $9,010 $2,330 $2, $17,000 $8,172 $9,009 $2,404 $2,650

9 FBT Exempt and Rebatable Employers Recent observations and challenges. Don t assume that your organization is Exempt or Rebatable because it always has been. Confirm your FBT status Substantiation is required, it is not acceptable to just deduct a set amount pre-tax each fortnight or monthly pay period Look outside the caps for salary packaging opportunities If your salary packaging provider or fleet manager makes a mistake, then it is the employer that needs to manage the issue / interact with ATO if necessary Amendments can t be made prospectively

10 Exempt Items Portable Electronic Devices Small Business Concession Associates not eligible Must be primarily for work purposes Only 1 exemption claim from each type of PED Exception: from 1 April 2016 Small Businesses can provide multiple portable electronic devices with similar functionality

11 Taxi v Uber.is there a difference? The FBT law taxi exemption applies to: Taxi travel beginning or ending at the workplace; Taxi travel to attend medical appointment; or Taxi travel if employee is unwell. Uber, and other similar ride sourcing arrangements, do not fit within the definition of a taxi for the purposes of the FBT exemption. The ATO is undertaking consultation on this. Note: for GST purposes, taxi and uber are treated the same.

12 ATO Draft Ruling on Employee Travel. TR 2017/D6: Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses? The ATO has withdrawn Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits The 21 day rule no longer exists When does travel become Living Away From Home? Up to 6 weeks is considered Travel days is considered Living Away From Home

13 The FBT test for Payroll Professionals The test: Are there restrictions on what can be Salary Packaged? Are there any Allowances subject to the FBT rules? Is Salary Packaging mandatory? Is Alcohol always considered to be Entertainment and therefore subject to the FBT rules?

14 The challenge with names Payroll Business Fleet Manager Health Insurance Provider Jim Smith Jimmy Smith J Smith James Henry Smith Payroll Business Fleet Manager Health Insurance Provider Jin Liu Alice Liu J Liu Liu Jin

15 Paul Mather FBT Key Learnings FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

16 Meal Entertainment Valuation Meal entertainment is provided 50/50 split method 50% of ME expenditure is: *subject to FBT; and *deductible (excl. any GST ITC) *GST ITC claim ME to employees Actual method Does an FBT exemption apply? *Exempt property benefit *Exempt minor benefit *Exempt taxi travel Yes No ME to clients, suppliers, etc *No FBT is payable *No tax deduction can be claimed *No GST ITC *No FBT is payable *No tax deduction can be claimed *No GST ITC *FBT is payable (subject to otherwise deductible rule *Tax deduction can be claimed *GST ITC claim

17 Policy: Entertainment Expenses Policy inclusions & considerations Defining entertainment Health & safety Defining employee Taxis Setting limits per person Documentation required Setting limits per event Attendees Preferred suppliers Payment method Pre / Approval process Alcohol Recoverability Tipping Costing Claiming Understanding FBT

18 Achieving Savings Actual Method v 50/50 Method Annual spend of $1,100,000 incl GST broken down as follows: On premises $220,000 Minor $330,000 (all employees) Clients $440,000 Employees $110,000

19 Achieving Savings 50/50 Method FBT cost = $537,800 Actual Method FBT cost = $107,600 Effect of lost income tax deductions = $240,000 Lost GST credits = $40,000 Savings under Actual Method = $150,200

20 Key FBT Learnings Logbooks Show me the logbook! Locating logbooks in May is a problem Novated leases mini deduction for FBT Incomplete Handwritten Logbooks are an important document to access the FBT concession Lack of detail Work / Business A novated lease agreement or lease quote, calculation of FBT for salary packaging, an , a promise, the accountant has it, (not forgetting the dog, cat, budgie, goldfish ate it) these are not acceptable reasons to accept a business use % without the underlying documentation Understanding FBT

21 Key FBT Learnings Fuel Cards Fuel card records Use of fuel card independent of car benefit Declaration reliance / employee understanding The 80 / 20 rule Verify business use? Policy Employee engagement Understanding FBT

22 Key FBT Learnings Car Parking Location, location, location In-house assessments and valuations FBT liability assessment 1 April 2017, not in May 2018 Is it a car parking benefit? (or could it be a reimbursement) Counting the benefits - usage Records? Default = 228 days Can t estimate Based on full year Car parking register Valuation Average cost difficult to determine in May 2018 Understanding FBT

23 2018 FBT Update Motor Vehicles The biggest issue in FBT

24 Are there any exemptions? A panel van or utility truck designed to carry a load of < 1 tonne, or Any other road vehicle designed to carry a load of < 1 tonne and not principally designed to carry passengers is an exempt car IF: private use is limited to home to work travel, and other private travel is minor, infrequent or irregular. Once private travel is more than minor, infrequent or irregular, the car is subject to FBT in the usual way ATO take a very narrow view on the definition of minor, infrequent or irregular, consider a logbook

25 Claiming the car exemption Vehicles Under 1 tonne (car) 1. Under 1 tonne, not principally designed to carry passengers 2. ATO approved listing, some dual cabs acceptable 3. Home to work / work to home travel acceptable 4. Business travel acceptable 5. Minimal private travel allowed (no private use policy) ATO view: 2 x personal trips to rubbish tip OK 1 x push boat down boat ramp, NOT OK Understanding FBT

26 Claiming the car exemption Vehicles Over 1 tonne (non car) 1. Over 1 tonne or designed to carry more than 8 passengers (ATO approved listing) 2. Exemption requirements similar to under 1 tonne Valuation (SFM not available) 1. Fully exempt 2. Partial exemption: Limited private travel acceptable FBT payable on a cents per kilometre basis. Records required, or 3. No exemption: Operating cost method to be used, Logbook records required 4. Statutory formula method cannot be used Understanding FBT

27 Getting the car exemption wrong What if we claim the exemption and get audited? OK, we re not getting audited but what do we need to be aware of? Onus of proof is on the employer Does the vehicle meet the requirements for exemption? Has there been any private use? What records are available to prove no private use? What policy is in place? Is it available and current? Is the employee prohibited from using the vehicle privately? Understanding FBT

28 Getting the car exemption wrong What if we claim the exemption and get audited? OK, we re not getting audited but what do we need to be aware of? Can the total kilometres travelled for a period be reconciled to confirm a reasonable level of total usage? Average daily travel H2W & W2H Average daily business travel Has employee/s been driving to and working at set work sites / locations Can any variance be explained? Understanding FBT

29 Getting the car exemption wrong What if we claim the exemption and get audited? OK, we re not getting audited but what do we need to be aware of? Are toll records available? (toll usage on weekends) Are fuel records / receipts available? (filling up in Byron Bay over Christmas break) Has the employee received any speeding fines or other infringements? (whilst in Bryon Bay over Christmas break) Understanding FBT

30 Getting the car exemption wrong What if we claim the exemption and get audited? OK, we re not getting audited but what do we need to be aware of? If the employee/s take the car home, do they have their own car for after hours and weekend usage? Does the car have a tow bar? Does the employee own a boat or caravan or indulge in off-road motor sports or other adventure activities that require use of a trailor? Are there baby / child seats installed? Have the employee s completed declarations? What instructions or guidance accompanies the declaration? Have the declarations been reviewed / verified? Understanding FBT

31 Getting the car exemption wrong Key takeaways Don t assume exemption applies Review usage of fleet How would you go in an ATO audit? For over 1 tonne vehicles, without logbook records, there is no FBT parachute position available ATO FBT audits are primarily targeted on motor vehicles Understanding FBT

32 Paul Mather 2018 Salary Packaging FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

33 Did the Keating Government know? It sounds strange, but the FBT law is full of exemptions and concessions. The FBT law was introduced way back in 1986 with the intention to tax non-cash fringe benefits. But in doing so, the FBT law has allowed for exclusions, concessions, reductions and exemptions. Many employers are not fully aware of the opportunities these may present as part of strategies for remuneration, reward, policy or salary packaging. Many employers do not fully understand the rules and requirements involved

34 The great SP opportunity of Australian FBT Fully Taxable Fringe Benefits Exempt or Concessionally Taxed Fringe Benefits

35 What s left in Salary Packaging? Significant opportunities. including Exempt employers Remote Area Rebatable employers FIFO transport Motor Vehicles Expatriates Associate Leases Public transport * Car Parking Self-education LAFHA Work related items Relocation costs Portable electronic devices Temporary Accommodation In-house recreational Sale and Purchase costs Airline lounge memberships

36 Salary Packaging - One size doesn t fit all Creating flexibility in remuneration and/or lifestyle Arrangements or offerings to consider: 1. The car commuter - combining car & car parking 2. The taxi (or PT) commuter package taxi over car / car parking 3. The packaging power for relocations / mobility / remote area / living away from home 4. The permanent relocator package temporary accommodation and incidentals of home sale & purchase 4. The Expatriate package school fees / Uni fees 5. The SP dipper having a broad range of benefits on offer

37 Salary Packaging Creating the win win situation! Giving employee s a pay increase at no additional employer cost! FBT Return Outsource FBT Advisory and Consulting FBT & Salary Packaging Training Logbook Solutions FBT Compliance Risk Review FBT Query Service Car Parking FBT Valuation Salary Packaging Solutions

38 Salary packaging key points 1. Not a right but an employer choice 2. Foregoing (sacrificing) future income in exchange for non cash fringe benefits 3. Re-arranging remuneration to maximise take home pay 4. Employers: Works best for exempt & rebateable employers 5. Benefit types: Works best with exempt benefits and concessionally taxed benefits 6. Should be cost neutral to the employer 7. Compliments flexible working arrangements 8. Increases buying power = significant discounts available Understanding FBT

39 Salary Packaging - Employee What s important? Seek own advice Understand what s in / what s out of the package Understand your obligations Understand your employers policies, written or otherwise ie use of logbook method or acceptance of exempt car Understand the effect on after tax income Understand the effect on super contributions Understand the RFB effect

40 Salary Packaging - Employer What s important? Written salary packaging policy Written policies on the provision of fringe benefit type Ability / willingness to administer (collaborate) Capability of Payroll system / outsource Documented processes Incorporate into employment contract Understand the implications Tax (FBT, income tax deduction, GST, Payroll Tax) End of employment Administration

41 Salary Packaging - Employer Benefits for employees Can increase overall value of remuneration package Can afford better car, better laptop etc The hidden benefits of packaging Employer may have buying power Administration with employer Salary sacrifice impacts on other taxes: Payroll tax Work comp

42 About Salary Packaging Cars About Salary Packaging Cars

43 Key policy points Salary packaging a vehicle Pre-tax only Post-tax only Pre & post tax Luxury cars? Use of Logbooks Claiming days unavailable for private use Exempt vehicles Designated fleet suppliers Use of own suppliers insurance, repairs etc, own supplier

44 Some key points Salary packaging a vehicle The vehicle can be a car or non car as defined by FBT law The vehicle must be owned or leased by the employer Novated lease effectively converts an employee leased vehicle in to an employer leased vehicle The novation agreement transfers all the responsibilities from the employee to the employer Upon termination of end of lease, the responsibilities transfer back from the employer to the employee Packaging involves estimating up front the running costs and FBT liability therefore, a later reconciliation is required

45 Salary Packaging vehicles key features Vehicles key features of salary packaging 1. Concessional FBT treatment applies to vehicles 2. Employer may allow choice of SFM or OCM for car and OCM or the cents per Kms method for non car 3. Employer may allow (or insist) on use of after tax contribution method 4. Employer claims GST on lease payments / running costs 5. Employee only sacrifices the GST exclusive values 6. Employee sacrifices from pre-tax salary 7. Employee savings where marginal rate is less than FBT rate (49% for 2017 & reduced to 47% from 2018 onwards) 8. Logbook method can produce even greater savings Understanding FBT

46 Salary Packaging cars Pre-tax deductions (GST exclusive) 1. Lease payments 2. Fuel & Oil 3. Repairs & Maintenance 4. Insurance & Registration 5. Car Washes & Road side assistance 6. Admin fees (Fleet Manager / Salary Packaging bureau) 7. Estimated FBT liability or employee contribution 8. GST liability on employee contribution 9. Luxury car adjustment Post-tax deductions 1. Employee contribution (GST inclusive) Understanding FBT

47 Salary Packaging cars Post-tax deduction = Employee contribution Calculated as the taxable value for FBT purposes For example, a $30,000 car. Taxable value = $30,000 x 20% = $6,000 (assumed that the car is held for full year) Therefore, to ensure a nil taxable value (i.e no FBT liability), the employee contribution must be equal to the taxable value. In the above example, $6,000 is the employee contribution The contributions must be made before the date of lodgement of the FBT return (i.e does not have to be physically paid by 31 March). Understanding FBT

48 Working out the deductions Pre-tax Example: $30,000 car Estimated annual lease & running costs of $13,200 Pre-tax only Novated Lease Pre-tax deductions 1. $12,000 running costs (GST excl.) 2. $5, FBT liability ($30,000 x 20% x x 47%) Divide by 12 / 26 / 52 for periodic deductions.

49 Working out the deductions Post-tax Example: $30,000 car Estimated annual lease & running costs of $13,200 After tax contribution: $30,000 x 20% = $6,000 Pre-tax deductions 1. $12,000 running costs 2. ($6,000) Contribution offset 3. $ GST liability on contribution Post-tax deductions 1. $6,000 Employee Contribution Divide by 12 / 26 / 52 for periodic deductions.

50 GST on employee contributions Employees often make after tax contributions in respect of Novated Leases & Car Parking GST is payable on an after tax employee contribution for fringe benefit s that are GST taxable No GST liability in relation to employee contributions on GST-free or input taxed supplies (Type 2 benefits) The amount of GST payable is one eleventh of the contribution (ie $110 contribution = $10 GST liability) Only applies to cash contribution made to employer, not contribution made to a 3rd party Reduce taxable value for FBT by GST inclusive amount Ten elevenths is assessable income in company ITR

51 Income Tax Return Form Fringe benefit employee contributions

52 Luxury Car Limit Threshold Luxury Car Limit threshold The Luxury Car Limit threshold for the financial year is $57,581 that applies for income tax depreciation purposes. It should be noted that the above-mentioned luxury car limit is NOT the same as the luxury car tax threshold (tax imposed on the purchase of luxury cars).

53 Luxury Car Threshold Impact on employers Where an employer leases (novated or operating lease) a luxury car the income tax law requires that the car be treated as owned. The employer: 1. Can claim a deduction for depreciation but only up to the luxury car threshold of $57, The depreciation over and above the $57,581 is nondeductible 3. The lease payments are non-deductible (interest portion is deductible)

54 Luxury Car Employer Impact As the deductions claimable are less than the lease payments, the employer is worse off and pays more income tax than ordinarily required Where it is a novated lease, the employer wants to recover from the employee the additional cost (to ensure that the novated lease arrangement is cost neutral) by calculating the Luxury Car Adjustment or LCA. This results in an additional pre-tax deduction from the employees salary package. The higher the car value, the greater the LCA / pre-tax deduction required.

55 Recap on SFM & OCM Recap on SFM & OCM formulas

56 Statutory formula method Taxable Value = (A x B x C D) - E A = Base value of the car (GST inclusive) B = Statutory fraction C = Number of days a benefit is provided D = Number of days in FBT year 365 (or 366) E = Recipient s (Employee) contribution Then Gross Multiply by FBT 47%

57 Operating cost method Taxable Value = (C x (100% - BP)) - E Where C = operating costs of the car BP = the business percentage for the car E = Recipient s (Employee) contribution Then Gross Multiply by FBT 47%

58 Salary Packaging a Car Salary Packaging under Statutory Formula Method: 1. Without packaging 2. Pre-tax only 3. Pre & post tax Note: All the calculations below do not take into account the Medicare Levy of 2% and Super contributions

59 Income Tax Rates 2017/18 Taxable income Tax on this income 0 - $18,200 Nil $18,201 - $37,000 19c for each $1 over $18,200 $37,001 - $87,000 $3,572 plus 32.5c for each $1 over $37,000 $87,001 - $180,000 $19,822 plus 37c for each $1 over $87,000 $180,001 and over $54,232 plus 47c for each $1 over $180,000

60 Statutory Formula Method - $30k car FBT base value 30, Estimated statutory fraction 20% No. of days 365 Days unavailable 0 Total no. of days 365 Taxable Value (or Contribution Amount) 6, Grossed Up taxable , FBT 47% 6, Operating Costs per annum Incl GST Lease payment 4, Petrol, maintenance, tyres, registration 4, ,900.00

61 SFM: $30,000 car / $75,000 salary (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 75, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (5,866.16) 0 Taxable Income 75, , , Income Tax (15,922.00) (11,090.50) (14,769.73) Net 59, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 49, , , Savings ,506.82

62 SFM: $30,000 car / $125,000 salary (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 125, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (5,866.16) 0 Taxable Income 125, , , Income Tax (33,882.00) (28,381.52) (32,570.18) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 81, , , Savings ,666.36

63 SFM: $30,000 car / $175,000 salary (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 175, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (5,866.16) 0 Taxable Income 175, , , Income Tax (52,382.00) (46,881.52) (51,070.18) Net 122, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 112, , , Savings ,666.36

64 SFM: $30,000 car / $225,000 salary (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 225, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (5,866.16) 0 Taxable Income 225, , , Income Tax (75,382.00) (68,394.90) (73,715.64) Net 149, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 139, , , Savings 2, ,020.91

65 Statutory Formula Method - $150k car Luxury Car FBT base value 150, Estimated statutory fraction 20% No. of days 365 Days unavailable 0 Total no. of days 365 Taxable Value (or Contribution Amount) 30, Grossed Up taxable , FBT 47% 29, Operating Costs per annum Incl GST Lease payment 27, Petrol, maintenance, tyres, registration 27, ,000.00

66 SFM: $150,000 car / $225,000 salary Luxury Car (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 225, , , Motor Vehicle pretax deduction 0 (50,000.00) (50,000.00) Employee contribution , GST on employee contribution pre tax deduction 0 0 (2,727.27) FBT Liability pretax deduction 0 (29,330.82) 0 Luxury car adjustment 0 (6,521.00) (6,521.00) Taxable Income 225, , , Income Tax (75,382.00) (39,116.83) (61,635.31) Net 149, , , Less Motor vehicle (incl GST) (55,000.00) Employee contribution - Post tax (30,000.00) Take home pay per year 94, , , Savings 5, ,498.42

67 Salary Packaging a Car Salary Packaging under Operating Cost Method 1. Without packaging 2. Pre-tax only 3. Pre & post tax Note: All the calculations below do not take into account the Medicare Levy of 2% and Super contributions

68 Operating Cost Method 60% Bus FBT Method: Logbook Method Log Book business use % 60% Taxable Value (or Contribution amount) 3, Grossed Up taxable value 8, FBT Liability 3, Operating Costs per annum Incl GST Lease payment 4, Running costs 4, ,900.00

69 OCM: $75,000 salary / 60% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 75, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 3, GST on employee contribution 0 0 (360.00) FBT Liability 0 (3,871.67) 0 Taxable Income 75, , , Income Tax (15,922.00) (11,738.71) (14,167.00) Net 59, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (3,960.00) Take home pay per year 49, , , Savings 1, ,295.00

70 OCM: $125,000 salary / 60% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 125, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 3, GST on employee contribution 0 0 (360.00) FBT Liability 0 (3,871.67) 0 Taxable Income 125, , , Income Tax (33,882.00) (29,119.48) (31,884.00) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (3,960.00) Take home pay per year 81, , , Savings 1, ,538.00

71 OCM: $175,000 salary / 60% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 175, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 3, GST on employee contribution 0 0 (360.00) FBT Liability 0 (3,871.67) 0 Taxable Income 175, , , Income Tax (52,382.00) (47,619.48) (50,384.00) Net 122, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (3,960.00) Take home pay per year 112, , , Savings 1, ,538.00

72 OCM: $225,000 salary / 60% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 225, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 3, GST on employee contribution 0 0 (360.00) FBT Liability 0 (3,871.67) 0 Taxable Income 225, , , Income Tax (75,382.00) (69,332.32) (72,844.00) Net 149, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (3,960.00) Take home pay per year 139, , , Savings 3, ,078.00

73 Operating Cost Method - 80% bus FBT Method: Logbook Method Log Book business use % 80% Taxable Value (or Contribution amount) 1, Grossed Up taxable value 4, FBT Liability 1, Operating Costs per annum Incl GST Lease payment 4, Running costs 4, ,900.00

74 OCM: $75,000 salary / 80% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 75, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 1, GST on employee contribution 0 0 (180.00) FBT Liability 0 (1,935.83) 0 Taxable Income 75, , , Income Tax (15,922.00) (12,367.85) (13,582.00) Net 59, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (1,980.00) Take home pay per year 49, , , Savings 2, ,060.00

75 OCM: $125,000 salary / 80% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 125, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 1, GST on employee contribution 0 0 (180.00) FBT Liability 0 (1,935.83) 0 Taxable Income 125, , , Income Tax (33,882.00) (29,835.74) (31,218.00) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (1,980.00) Take home pay per year 81, , , Savings 3, ,384.00

76 OCM: $175,000 salary / 80% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 175, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 1, GST on employee contribution 0 0 (180.00) FBT Liability 0 (1,935.83) 0 Taxable Income 175, , , Income Tax (52,382.00) (48,335.74) (49,718.00) Net 122, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (1,980.00) Take home pay per year 112, , , Savings 3, ,384.00

77 OCM: $225,000 salary / 80% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 225, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 1, GST on employee contribution 0 0 (180.00) FBT Liability 0 (1,935.83) 0 Taxable Income 225, , , Income Tax (75,382.00) (70,242.16) (71,998.00) Net 149, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (1,980.00) Take home pay per year 139, , , Savings 4, ,104.00

78 Operating Cost Method - 80% bus LUXURY CAR FBT Method: Logbook Method Log Book business use % 80% Taxable Value (or Contribution amount) 11, Grossed Up taxable value 22, FBT Liability 10, Operating Costs per annum Incl GST Lease payment 27, Running costs 27, $55,000.00

79 OCM: $225,000 salary / 80% business LUXURY CAR (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 225, , , Motor Vehicle expenses 0 (50,000.00) (50,000.00) Employee contribution 11, GST on employee contribution 0 0 (1,000.00) Luxury car adjustment 0 (6,521.00) (6,521.00) FBT Liability 0 (10,754.63) 0 Taxable Income 225, , , Income Tax (75,382.00) (45,990.02) (53,669.23) Net 149, , , Less Motor vehicle (incl GST) (55,000.00) Employee contribution (11,000.00) Take home pay per year 94, , , Savings 17, ,191.77

80 Salary Packaging a Car Rebatable Employer Salary Packaging under Statutory Formula Method 1. Without packaging 2. Pre-tax only 3. Pre & post tax Note: All the calculations below do not take into account the Medicare Levy of 2% and super contributions

81 Rebatable Employer FBT base value 30, Estimated statutory fraction 20% No. of days in FBT year 365 Days unavailable 0 Total no. of days available 365 Taxable Value (or Contribution amount) 6, Grossed Up taxable , FBT 47% less 47% rebate 3, Operating Costs per annum Incl GST Lease payment 4, Petrol, maintenance, tyres, registration 4, ,900.00

82 Rebate: $75,000 salary / $30,000 car (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 75, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (3,109.07) 0 Taxable Income 75, , , Income Tax (15,922.00) (11,986.55) (14,769.73) Net 59, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 49, , , Savings 1, ,506.82

83 Rebate: $125,000 salary / $30,000 car (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax & Post tax ECM Gross Salary Package 125, , , Motor Vehicle pretax deduction 0 (9,000.00) (9,000.00) Employee contribution 6, GST on employee contribution pre tax deduction 0 0 (545.45) FBT Liability pretax deduction 0 (3,109.07) 0 Taxable Income 125, , , Income Tax (33,882.00) (29,401.65) (32,570.18) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax (6,000.00) Take home pay per year 81, , , Savings 2, ,666.36

84 Rebate: $125,000 salary / 60% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 125, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 3, GST on employee contribution 0 0 (360.00) FBT Liability 0 (2,051.98) 0 Taxable Income 125, , , Income Tax (33,882.00) (29,792.77) (31,884.00) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (3,960.00) Take home pay per year 81, , , Savings 2, ,538.00

85 Rebate: $125,000 salary / 80% business (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM (Option 3) Salary Sacrifice: Pre-tax deductions & Post tax ECM Gross Salary 125, , , Motor Vehicle expenses 0 (9,000.00) (9,000.00) Employee contribution 1, GST on employee contribution 0 0 (180.00) FBT Liability 0 (1,025.99) 0 Taxable Income 125, , , Income Tax (33,882.00) (30,172.38) (31,218.00) Net 91, , , Less Motor vehicle (incl GST) (9,900.00) Employee contribution (1,980.00) Take home pay per year 81, , , Savings 3, ,384.00

86 Exempt Employer - Salary Packaging Exempt Employer Salary Packaging a car under Statutory Formula Method 1. Without packaging 2. Pre-tax only Note: All the calculations below do not take into account the Medicare Levy of 2% and Super contributions

87 Exempt employer - salary packaging Total cost of vehicle 30, FBT base value 30, Estimated statutory fraction 20% Taxable Value 6, Grossed Up taxable value 12, FBT Liability - Operating Costs per annum Incl GST Lease payment 4, Petrol, maintenance, tyres, registration 4, ,900.00

88 Exempt: $70,000 salary / $30,000 car (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM Gross Salary Package 70, , Motor Vehicle pretax deduction 0 (9,000.00) Employee contribution GST on employee contribution pre tax deduction 0 0 FBT Liability pretax deduction 0 0 Taxable Income 70, , Income Tax (14,297.00) (11,372.00) Net 55, , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax Take home pay per year 45, , Savings 3,825.00

89 Exempt: $120,000 salary / $30,000 car (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax deductions - No ECM Gross Salary Package 120, , Motor Vehicle pretax deduction 0 (9,000.00) Employee contribution GST on employee contribution pre tax deduction 0 0 FBT Liability pretax deduction 0 0 Taxable Income 120, , Income Tax (32,032.00) (28,702.00) Net 87, , Less Motor vehicle (incl GST) (9,900.00) Employee contribution - Post tax Take home pay per year 78, , Savings 4,230.00

90 Reconciliation of packages - cars Adjustments and reviews Since deductions, FBT, final salary and recipient s contribution are often based on estimates a review should be carried out close to year s end Under SFM days unavailable can make a difference Under OCM the failure to produce a logbook can make a significant difference. Tight policy / process required to ensure there are no FBT surprises Perform new package calculation and compare remaining salary and recipient s contribution Failure to review and adjust annually can lead to bigger problems further down the track

91 Cars Associate Lease i. Associate (spouse) owns / leases car ii. Associate lease is an arrangement whereby the spouse leases the car to the employer iii. Employee salary sacrifices lease payments iv. Spouse receives lease income from employer, deducts lease expense (or depreciation charge / financing charges if car is owned) and all running expenses v. Spouse required to have an ABN, otherwise no ABN withholding applies vi. Effective when employee has higher marginal tax rate vii. Putting tax free income in to hands of spouse or taxed at lower margin Understanding FBT

92 Salary Packaging Car Parking Salary Packaging Car Parking

93 Some key points Salary packaging car parking Car parking is a concessionally taxed benefit Exemptions and exclusions can apply Survey to determine if FBT liability exists required The car parking space must be owned, leased or otherwise made available by the employer to the employee Reimbursement of parking costs or where lease is in employee name, is not a car parking benefit Packaging involves estimating up front the FBT liability therefore, a later reconciliation is required Various options for calculating the FBT The less than 4 hour rule is key to FBT savings

94 Car Parking Fringe Benefits Counting the benefits Valuing the benefits Number of actual benefits Lowest all day fee for each day of benefit Method of determining total number of benefits Statutory formula method Method of determining the value of each benefit Average cost at 1 April & 31 March Employee contributions 12 week register Market value basis Car parking threshold: $8.66 for 2018 FBT Year (TD 2017/14)

95 Salary Packaging car parking examples Example one: Monthly leasing Employee leases a car parking space for $440 per month from after tax salary. If instead the employer leases the car parking space and allows the employee to salary package the space, the employee receives an additional minimum $1,575 in the hand or just over $131 per month. Potential savings will be greater if the employer can obtain a corporate discount on the monthly parking cost. In this scenario the employer uses the statutory formula method to work out the FBT. Understanding FBT

96 Salary Packaging Car Parking Lease Car Parking Data GST Inclusive GST Exclusive Total annual lease cost of a car parking space to be recovered from employee ($400 per month + GST) 5, , Average Lowest all day parking rate (within 1km) 7.00 Annual Taxable Value 1, Annual - FBT Liability (cost to package) 1, Annual Salary - Exclude Super $ 100, (Option1) No Salary Sacrifice (Option 2) Salary Sacrifice: Pre-tax (Option 3) Salary Sacrifice: Pre-tax & Post tax Annual Salary - Exclude Super 100, , , Car Parking Lease Cost pretax deduction (4,800.00) (4,800.00) Employee contribution 1, GST on employee contribution pre tax deduction (144.69) FBT Liability pretax deduction (1,556.14) Taxable Income 100, , , Income Tax (24,632.00) (22,280.23) (23,391.37) Net 75, , , Less Car parking lease cost (incl GST) (5,280.00) Employee contribution - Post tax (1,591.64) Take home pay per year 70, , , Savings 1, , Understanding FBT

97 Salary Packaging car parking examples Example two: Adhoc pay as you park The employer has an arrangement with a commercial parking station for the employee to park on an adhoc basis, and the employer only pays on a pay as you park basis, averaging out to 3 days a week for 46 weeks of the year. The employee salary packages the parking costs. This scenario demonstrates: The cost of parking is lower The employee parked only 3 days a week, thus the FBT is lower by using the actual method. Understanding FBT

98 Salary Packaging Car Parking Adhoc 3 days per week Car Parking Data GST Inclusive GST Exclusive Cost of parking 3 days a $16 (assume 46 weeks) 2, , All day parking rate (cost to package) Lowest average all day parking rate (within 1km) 7.00 Taxable Value based on parking 138 days (3 days x 46 weeks) multiplied by lowest daily rate of $ Annual - FBT Liability (cost to package) Annual Salary - Exclude Super $ 100, (Option1) No Salary Sacrifice (3 days per week x 46 weeks = 138 days) (Option 2) Pretax (Option 3) Pretax & Post tax Annual Salary - Exclude Super 100, , , Car Parking Lease Cost pretax deduction (2,007.27) (2,007.27) Employee Contribution GST on employee contribution pre tax deduction (87.82) FBT Liability pretax deduction (944.45) Taxable Income 100, , , Income Tax (24,632.00) (23,539.86) (24,214.24) Net 75, , , Less Car parking lease cost (incl GST) (5,280.00) Employee contribution - Post tax (966.00) Take home pay per year 70, , , Savings 3, , Understanding FBT

99 Reconciliation of package car parking Adjustments and reviews Since deductions, FBT, final salary and recipient s contribution are often based on estimates a review should be carried out close to year s end The number of days a benefit is provided is important The car parking valuation cannot be determined until after 31 March, so a true up will normally be required Perform new package calculation and compare remaining salary and recipient s contribution Failure to review and adjust annually can lead to bigger problems further down the track

100 Salary Packaging Relocations Salary Packaging Relocations Expenses

101 Permanent Relocation Moving within Australia or into Australia Change of job location Requirement by employer Family usually relocate FBT exemptions apply to travel, removal of goods, incidental costs of sale & purchase of home, temporary accommodation costs Understanding FBT

102 Permanent Relocation Exemptions for incidental costs relating to sale & purchase of home: I. Stamp duty on purchase II. Legal costs III. Advertising costs IV. Agents costs Must sell former home within 2 years AND purchase new home within 4 years Works for local or inbound employee who is permanently relocating Understanding FBT

103 Temporary Accommodation Concession Permanent Relocation only exemption for temporary accommodation costs & leasing of household goods Up to 4 months from date of relocation No declaration required Up to 6 months from date of relocation Declaration looking for suitable long term accommodation Up to 12 months from date of relocation Declaration sustained efforts to buy home in new location Owned home at former location Must sell home within 6 months of relocating

104 Permanent Relocation Incidental Costs Employee salary packaging Relocation Incidental Costs Sale of residence - incidental costs Purchase of residence - incidental costs including stamp duty Scenario GST Inclusive GST Exclusive Cost 88, , Annual - FBT Liability (exempt if conditions met) Gross Salary $150, (Option 2) Salary Sacrifice: Pretax (Option1) No Salary Sacrifice deductions Gross Salary 150, , Pretax Deduction (80,000.00) Taxable Income 150, , Income Tax (43,132.00) (14,297.00) Net 106, , Less exempt benefit cost (incl GST) (88,000.00) Take home pay after expenses 18, , Employee savings 36, Understanding FBT

105 Permanent Relocation Relocation Costs Certain relocation expenses are exempt from FBT including: Travel costs Leasing furniture for temporary accommodation Removal and storage of furniture and personal effects Connection telephone, electricity or gas services Fees paid to relocation consultants Assuming that an employee incurred the above expenses during his/her permanent relocation to Australia from Canada. The total costs are $22,000 (GST inclusive), for illustration purposes we assume that all the expenses are subject to GST. Understanding FBT

106 Permanent Relocation Relocation Costs Employee salary packaging Relocation Costs Scenario GST Inclusive GST Exclusive Cost 22, , Annual - FBT Liability - exempt if conditions met Gross Salary $120, (Option 2) Salary Sacrifice: Pre-tax (Option1) No Salary Sacrifice deductions Gross Salary 120, , Pretax Deduction (20,000.00) Net salary 120, , Super Deduction -pre tax Gross (10,410.96) (8,675.80) Taxable Income 109, , Income Tax (28,179.95) (21,421.95) Net 81, , Less exempt benefit cost (incl GST) (22,000.00) Employee contribution - Post tax Take home pay per year 59, , Additional take home pay 10, Understanding FBT

107 Salary Packaging LAFH benefits Significant change from 1 October 2012 but exemption still available in certain circumstances. LAFH benefits are provided to compensate the employee for the additional costs suffered as a result of living away from home to undertake their employment duties. 1.Employee must maintain a home in Australia that they live away from (cannot sublet) 2.Employee s who maintain a home, exemption capped at 12 months at any one location 3.Employee s working on a FIFO or DIDO basis no requirement to maintain a home and no 12 month cap Understanding FBT

108 Salary Packaging LAFH benefits What can be packaged? Actual costs of accommodation or allowance equivalent are exempt Amounts in excess of the above will be subject to FBT Food up to the ATO reasonable amounts currently $247 per week for a single adult for additional food costs, is exempt Amounts in excess of the above will be subject to FBT unless the employee can substantiate all the food costs Understanding FBT

109 Salary Packaging LAFH Accommodation Employee salary packaging LAFHA Accommodation Rent $600 per week (for 12 months) paid as salary packaged tax free allowance Scenario GST Inclusive GST Exclusive Cost (not subject to GST) 31, , Annual - FBT Liability (exempt if conditions met) Gross Salary $100, (Option 2) Salary Sacrifice: (Option1) No Salary Sacrifice Pre-tax deductions Gross Salary 100, , Pretax Deduction (31,200.00) Taxable Income 100, , Income Tax (24,632.00) (13,907.00) Net 75, , Less exempt benefit cost (31,200.00) Take home pay after Rent expense 44, , Employee savings 10, Understanding FBT