Version July 2011

Transcription

1 Salary Packaging Manual Version July

2 Table of Contents Contents Page No Disclaimer 3 Explanation of Terms Introduction Salary Packaging Overview Salary Sacrifice Arrangement Effective Salary Sacrifice Arrangement What are the Salary Implications for Employees Who can participate in Salary Packaging Existing Salary Packaging arrangements with ACTPS External 7 Salary Packaging Providers 1.7 To Commence Salary Packaging Independent Financial Advice Employee Responsibilities in the Administration of a Salary Package Package Items Category A - Exempt Benefits e.g. Notebook/Laptops Category B - Concessionally Taxed Benefits 12 (Superannuation/Motor Vehicles) 2.3 Reportable Fringe Benefits Fringe Benefits Tax (FBT) Input/Tax Credits and the GST Administration Fees Payments Changing or Terminating the Package Leave without Pay or LSL/Annual Leave Half-Pay Superannuation Super Surcharge Statements FBT Declaration Novated Motor Vehicle Leases Contact with Salary Packaging Team 19 Annex A Salary Packaging Agreement and Declaration 20 Schedule 1 Menu items available for Salary packaging 25 Schedule 2 Approved Service Provider 26 Annex B Salary Packaging Authorisation/Deduction Approvals 27 Annex C FBT Declaration 35 Annex D List of Supported Superannuation Funds 37 Annex E List of Accredited Financial Advisers 38 Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 2 of 38

3 Disclaimer This publication has been prepared without consideration of the particular investment objectives, financial situations and needs of Territory employees ( employees ). In all cases, employees must conduct and rely upon their own investigation and analysis of the information contained in this publication. No employee should act on the basis of any matter contained in this publication without considering, and, if appropriate, obtaining legal, financial and other professional advice upon the employee's particular circumstances. The actions of the employer, and Shared Services (SS), as the salary packaging administration provider, in making payments to a third party for employment benefits in accordance with an employee s salary package do not in any way imply a transfer of liability to the Territory, or the provider (SS), in relation to any agreement,* understanding or obligation between the employee and the third party. The Australian Capital Territory Public Service ( ACTPS ), each of its employees, employees of Shared Services and every person involved in the preparation of this publication expressly disclaims all liability for any loss or damage of whatsoever kind (whether foreseeable or not) which may arise from any person acting or relying on any statements contained in this publication, and notwithstanding any negligence, default or lack of care. Employees should not assume that any item or matter not covered by this manual is available for packaging but should seek clarification of the matter from the Salary Packaging Team, Shared Services. While this publication discusses taxation at a general level, given the complexity of taxation legislation, individual circumstances may produce particular results. Each person wishing to take advantage of remuneration packaging is required to take financial advice. This disclaimer does not limit or alter those statutory rights that cannot be excluded. Please be aware, Financial Planners do not determine the Shared Services administrative policy on salary packaging. Consequently you need to be familiar with the Shared Services approved items and arrangements. If in doubt about any aspect, contact the Salary Packaging Team, Shared Services. Acknowledgements Some of the information contained in this publication was obtained, with permissions, from a number of sources including: Australian Federal Police (AFP) Salary Packaging Manual and AFP Human Resources Director Canberra ACT ACTPS Salary Packaging Policy and Procedures June 2006 Commander (previously Computerquest Pty Ltd) Braddon ACT Teachers Credit Union (TCU) Melbourne Systems Group registered owners of Salpac Salary Packaging software. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 3 of 38

4 Explanation of Terms Unless stated otherwise, terms referred to in this document have the following meaning: Concessionally Taxed Items Employee Contribution Method Exempt Items Refers to those package items that do not attract full FBT. Refers to after-tax salary package contributions made by an employee to reduce the employee s FBT liability. Refers to those package items that are exempt from FBT. FBTAA Refers to the Fringe Benefits Tax Assessment Act FBT Full FBT Items GST GST Act Gross Salary Input Tax Credits Refers to the Fringe Benefits Tax imposed by the FBTAA. Refers to those package items that are subject to the full rate of FBT. Refers to the tax imposed as Goods and Services Tax by the GST Act. Refers to the A New Tax System (Goods and Services Tax) Act Represents an employee s cash salary before tax is deducted. Refers to an entitlement arising under the GST Act. ITAA Refers to the Income Tax Assessment Act Novated Lease Otherwise Deductible Items PBI Reimbursement Salary Packaging Under a novated lease, the employee s obligations under a finance lease agreement are transferred (novated) to the employer for the term of the deed of novation. Refers to those package items for which an employee would usually claim a tax deduction. An employee cannot claim a tax deduction for such package items if they form part of the employee s salary package. Organisations which have the status of a Public Benevolent Institution under the FBTAA. Refers to the repayment to an employee of monies originally paid out by the employee for package items, upon receipt and product of original receipted accounts. Refers to an arrangement between an employee and the employer whereby the employee elects to exchange cash salary for non-cash benefits. Non-cash benefits can be taken as a range of package items provided for in this document. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 4 of 38

5 1.0 Introduction Following initial approval by the Commissioner for Public Administration in 2003, the ACT Department of Education and Training (DET) was given approval to administer salary packaging in-house under a trial arrangement to enable DET and Canberra Institute of Technology (CIT) employees to access a limited range of package items internally. The DET in-house arrangements were extended to all ACTPS staff from other ACTPS agencies where a Memorandum of Understanding (MOU) existed between DET and the agency. From 1 February 2007, Shared Services (SS) administers the in-house salary packaging administration that was previously administered by DET, for all ACTPS agencies. This manual should be read in conjunction with the ACTPS Salary Packaging Policy and Procedures June Salary Packaging Overview Salary packaging is a legal process whereby an employee, with the approval of the employer, can take their salary as a combination of cash and non-cash benefits. For example, the payment of a novated lease and running expenses associated with a motor vehicle, a laptop computer or supplementary superannuation may be packaged. There is no PAYG tax payable on these benefits when salary is packaged. The non-cash benefits are paid for from the employee s pre-tax salary. Under a salary packaging arrangement a combination of income tax (PAYG) and Fringe Benefits Tax (FBT) replace the income tax normally payable on the employee s pre-tax salary. The level of FBT depends on the type and value of the benefit items packaged. The overall tax outcome for each employee will vary depending on the employee s particular circumstances. Some benefit items may also attract Goods and Services Tax (GST). Under a salary packaging arrangement an entitlement to a Goods and Services Input Tax Credit (ITC) may arise. Where there is an entitlement to an Input Tax Credit (ITC), SS will claim and return the ITC to the employee. In the case of Novated Motor Vehicle Leases and Laptop Leases, the initial pre-tax salary deduction is ex-gst, therefore all ITC s returned from the ATO are held by SS. Employees of Public Benevolent Institution organisations (PBI s) do not incur FBT, up to prescribed limits, on a part of the taxable value of those benefit items that are subject to FBT. However, taxation rules now require the taxable value of any fringe benefit, as defined in the Fringe Benefits Tax Assessment Act 1986, be grossed up and shown on the employee s group certificate (payment summary) at the end of each financial year. This applies equally to all employees, including those working in PBI s. Within the ACTPS only certain employees employed in ACT Health and the ACT Ambulance Service are eligible for PBI exemption. Salary packaging can provide a range of benefits to both employees and employers, such as: a) net increases in remuneration for employees; b) retention of valued employees; and c) attraction of key employees. This manual discusses the administrative process and procedures, including the types of benefit items that can be salary packaged, and the administrative arrangements that operate under the SS in-house arrangements. These arrangements may change from time to time. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 5 of 38

6 The Fringe Benefits Tax Assessment Act 1986 and Income Tax Assessment Act 1936 and 1997 regulate the relevant tax payable on such benefits. Any changes to this legislation, or any other legislation, that impacts on salary packaging will be reflected in the employee s remuneration package and will not increase or decrease the total cost to the employer. Should such a change in legislation occur the employee will be entitled to amend their salary packaging arrangements in accordance with arrangements set out in this document. If a higher Fringe Benefits Tax (FBT), or any Territory tax equivalent, becomes payable on a packaged item, the employee must make payment of the additional FBT amount, or equivalent, to their employer at the end of the reconciliation period. Shared Services offers a very streamlined model to ensure the cost of the administration of salary packaging is contained. All employees are eligible to participate in salary packaging but generally must seek independent financial advice from a licensed securities dealer. A maximum of 100% of remuneration packaging salary can be classified as non-cash items. NOTE: Independent financial advice is compulsory if the total package exceeds 50%. Up to 50%, the delegate can approve a package in the absence of financial advice, e.g. laptop computer or other small ticket item. The employee must request a waiver to obtain financial advice. Not all employees will benefit from salary packaging. Employees are under no obligation to participate in salary packaging. 1.2 Salary Sacrifice Arrangement A salary sacrifice arrangement is an arrangement between the employer and the employee where the employee agrees to forego part of their future entitlement to salary or wages in return for the employer providing benefits of a similar cost to the employer. Under a salary packaging arrangement: The employee only pays income tax on the reduced salary or wages. The employer may be liable to pay Fringe Benefits Tax (FBT) on the fringe benefits provided. Under the ACTPS Salary Packaging Policy, any employer FBT liability is directly passed onto the employee. Salary sacrificed superannuation contributions are classified as employer superannuation contributions (not employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject. The current superannuation tax is 15% which replaces the PAYG normally paid on the salary sacrificed. 1.3 Effective salary sacrifice arrangement An effective salary sacrifice arrangement is an arrangement between the employer and the employee detailing the amount of salary or wages income to be sacrificed and it must be entered into before the employee becomes entitled to be paid. The salary sacrifice arrangement would be entered into prior to the work being performed. Employees can re-negotiate a salary sacrifice arrangement at any time. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 6 of 38

7 1.4 What are the salary implications for employees? 1.41 Assessable Income The employee pays income tax only on the reduced salary and the employee receives a reduced salary plus non-cash benefits. Employees can also make employee contributions from their after-tax income towards the cost of providing the benefit (ECM) Income for Superannuation Purposes The employee s income for superannuation purposes is their gross salary excluding any deduction for salary sacrifice. Eligible employees will continue to contribute to their current superannuation scheme. 1.5 Who can participate in Salary Packaging Salary packaging is only available to eligible employees. An eligible employee is either: A permanent officer or temporary employee (including a probationary employee) employed under the Public Sector Management Act 1994 who is covered by a Certified Agreement, an Australian Workplace Agreement (AWA) or Special Employment Arrangement (SEA) that contains a clause providing access to salary packaging. A casual employee, may, subject to the agreement of the relevant Chief Executive (or his or her Delegate), be permitted to salary package some items from the approved menu. This will extend to salary packaging for laptop/notebook computers, superannuation and small ticket items. This entitlement would not apply to novated motor vehicle leases unless the period of the lease coincided with the duration of the temporary contract. For casual employees to salary sacrifice to superannuation, a casual superannuation deduction form must be lodged by fax (ext ) on each occasion their casual timesheet is lodged. An Executive contracted to an agency. NOTE: Officers who have been declared excess are not eligible for salary packaging. 1.6 Existing Salary Packaging arrangements with ACTPS External Salary Packaging Providers Staff with an existing salary packaging arrangement in place can transfer to the SS inhouse arrangements. This includes arrangements for superannuation, laptop/notebook computers (primarily for business use e.g. 51%), novated motor vehicle leases and any other approved salary packaged items. An authority to cease arrangements with the external provider will be provided to staff wishing to transfer. 1.7 To Commence Salary Packaging Request a Salary Packaging Letter of Offer from the Salary Packaging Team, Shared Services, telephone Alternatively, you can submit a request via the Human Resources section of the Customer Service Portal ( Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 7 of 38

8 Once received, complete the Salary Packaging Agreement (from the Letter of Offer) and forward back to the Salary Packaging Team, Shared Services, for processing Motor Vehicle Leases Standard Novated Leases are available from a number of Leasing Companies. These leases can include fully maintained or lease only payments, however, further information can be obtained direct from the Leasing Company. A Standard Novated Lease is between the employee and the leasing company. The employee is responsible for all lease payments during their employment with the ACTPS. Once the employee leaves the employment of the ACTPS the lease novates and the ex-employee becomes responsible for any future lease payments. For new vehicles you should contact an approved leasing company to ascertain the provisions of the novated lease and associated finance arrangements.. The majority of leasing companies provide Novated Leases for both new and secondhand vehicles. Second-hand vehicles can generally be sourced from a licenced motor dealer, auction house or private sale. This includes financing the purchase of own existing vehicle. As a general rule second hand vehicles must be no older than 7 years at the end of the proposed lease Superannuation Consider which fund you would prefer to package your superannuation following advice from your Financial Adviser. A list of approved Financial Advisers is provided at Annex E. (NOTE: Fund cannot be CSS or PSS Defined Benefits Schemes) 1.73 Laptop/Notebook Computer (primarily for business use e.g. 51%) If you wish to purchase a laptop/notebook computer, visit a computer retailer to check on available models and prices. See Section 2.1 for procedural details. 1.8 Independent Financial Advice Shared Services generally requires that all employees wishing to salary package obtain financial advice, including specialist advice on packaging options, before making any decisions. For packages exceeding 50% and up to 100% of salary, independent financial advice is compulsory. Financial advice is not compulsory for staff wishing to package any small item, such as a laptop/notebook computer, printer, reimbursement of airport lounge membership (QANTAS Club), professional association fees, financial advisor fees or other small ticket items. Staff are required to request a waiver if they do not seek financial advice. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 8 of 38

9 Regardless of which financial adviser is chosen, staff need to be fully conversant with the items that SS allow to be packaged. The financial adviser will provide a tax invoice for the service rendered which is an eligible salary packaging FBT exempt item as a reimbursement of the tax component. A Tax Invoice must be forwarded, along with Salary Packaging Deduction Forms E1 and E3, to the SS Salary Packaging Unit for processing. Staff are advised to ensure that the financial adviser is a licensed securities dealer. A list of financial advisers is shown at Annex E. Note: Obtaining financial advice is an employee cost. This cost can be salary packaged as an Exempt FBT item. 1.9 Employee Responsibilities in the Administration of a Salary Package To ensure the viability of the SS in-house arrangements, employees are required to take a pro-active role in the packaging administration themselves. For example, with novated motor vehicle leases, information on vehicle usage (odometer readings) in relation to FBT liability must be provided to SS Salary Packaging Team by the nominated date following the end of each FBT year (31 March) and monitoring of one's accounts on a regular basis. The SS Salary Packaging Team provides quarterly salary packaging statements for all packaged items. 2.0 Package Items Under the SS in-house arrangements, the following items are allowable: New Motor Vehicles through Novated Leases.; Second Hand Motor Vehicles through Novated Leases from a number of leasing companies. NOTE: Leasing policy varies from company to company; Laptop/notebook Computers; (primarily for business use e.g. 51%), Printers suitable for use with laptop/notebook computers (primarily for business use e.g. 51%); Supplementary Superannuation. (This does not include contributions to the existing Commonwealth CSS/PSS Defined Benefits Schemes, however, does include the PSSap scheme (introduced on 1 July 2005); Work Related Membership Fees for Professional Associations including annual subscriptions for work related journals, magazines and similar publications items. Eligibility for these items is assessed on a case-by-case basis. Airline Lounge Memberships (e.g. Qantas Club); Palm/Pocket PCs and Electronic Diaries; Briefcases; Financial Advice; Mobile Phones for at least 50% business use; Income Protection Insurance; Additional items which attract Full FBT (e.g. home mortgages/meal Entertainment) are only available to staff employed in areas with Public Benefit Institution (PBI) status, e.g. ACT Ambulance Service and ACT Health (eligible employees only). Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 9 of 38

10 Employees can package up to 100% of their pre-tax salary. Note: Independent Financial Advice is compulsory if packaging beyond 50% Category A FBT Exempt Benefits Notebook/Laptop Computers (primarily for business use e.g. 51%), including electronic organisers and Palm/Pocket PC s, Printers, Briefcases, Mobile Phones (Business Use), Subscriptions to Trade and Professional Journals, Airport Lounge Memberships These items are not subject to FBT but for which an employee could usually claim a tax deduction when preparing their annual tax return (e.g. Work Related Expenses). By including FBT exempt items in your package you will save the entire amount of tax that would otherwise have paid had you received your salary, paid income tax, and then purchased the item. Each employee is allowed to package one notebook/laptop computer, printer, electronic organiser or palm/pocket PC per FBT year (FBT Year is 1 April to 31 March) which will be free of FBT provided it is to be used primarily for business use (e.g. 51%). Desktop personal computers are not eligible for this concession. Microsoft s Home Use Program (HUP) is available to ACT Government employees for the term of the Microsoft Enterprise Agreement. This agreement allows employees to order their own copy of approved Microsoft media for installation of applications (such as Microsoft Office) on their laptop computer. Further information on the Microsoft Home Use Program is available in InTACT s Home Use Program InFACT Sheet at GST payable on these purchases is refunded through an Input Tax Credit (ITC) Purchase/Lease Options Option 1 - Reimbursement Employee purchases laptop/notebook computer/printer etc through own financing arrangements. The refund of the PAYG tax as a result of the reduced salary due to the packaging of the item will be reimbursed. In the case of finance leases, the interest payable and any administration fees are also reimbursed, i.e. the total package cost. In order to receive the reimbursement employees must submit the original of the tax invoice or receipt showing the cost of the computer. NOTE: Desktop computers are not eligible for FBT exemption. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 10 of 38

11 (Annex B1), must be included. The bank account name, number and Bank, BSB number and where the reimbursement is to be deposited are also required. The SS reimbursement will generally be made over a number of pays ranging from one up to five (5) pays. The reimbursement will be made to the employee s normal main pay bank account if purchased outright. GST on purchase is reimbursed. Option 3 Finance Lease - EquiGroup Laptop Computers are available to be packaged through a lease arrangement with Equismart. Payments are salary packaged on a fortnightly basis over a 12 or 24 month period. When commencing a lease, a Computer Hire Agreement between the employee and employer will need to be signed as well as an Order Form prior to any equipment being finalised. Leased laptops may only be purchased from the following suppliers: Lapy King: Contact Christian Rios Ph: MAC1: Contact Ken Hogg Ph: During the term of the lease, the employee is responsible for all payments. Should employees wish to terminate their contract early, or leave employment with the ACTPS, they will be liable to pay out the remaining usage term. This is also the case if the laptop/notebook is stolen or damaged. At the end of the lease term, the laptop or notebook may be purchased outright for a small fee ($1.00). For more information please contact the Shared Services Salary Packaging team on or at sharedservicessalarypackaging@act.gov.au Please note that if leasing a laptop, you may request that the payments be deducted from your post tax salary. In this instance there is no requirement that the equipment is primarily for business use Mobile Phones Mobile phones are a work-related item if they are primarily used for business use. This means that business use must be at least 50%. The benefit must involve the provision of a mobile phone. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 11 of 38

12 2.1.3 Briefcases, calculator, electronic diary These items are work-related and as such, are FBT exempt when salary packaged Subscriptions to Trade and Professional Journals, Airport Lounge Memberships Any of these items are FBT exempt. 2.2 Category B - Concessionally Taxed Benefits Certain items of expenditure are concessionally taxed for FBT purposes in respect of which an employee would not usually obtain a tax deduction. Accordingly, they potentially offer tax savings to cover the type of benefit items more commonly included in a remuneration package of an employee whose employer is subject to FBT Superannuation Employees may contribute to a private superannuation fund as part of their remuneration packaging arrangements. Superannuation is suitable for packaging as no FBT is payable regardless of the employer's FBT status though it is required to be reportable (Reportable Fringe Benefit Amount) on an employee s Payment Summary at the conclusion of each financial year Additional contributions must be made to a complying personal private superannuation fund that complies with the Superannuation Industry (Supervision) Act and Regulations. Additional superannuation contributions paid to a private fund via salary packaging are considered to be an employer contribution. Employees will only be able to direct funds to certain self-managed funds (SMF) as prescribed by ATO regulations. All contributions will be subject to a 15% contributions tax. Financial institutions, insurance companies, Australian banks and fund managers offer a variety of complying superannuation funds. The SS Salary Packaging Deduction Authority (Annex B2) must be provided to the Salary Packaging Team, SS, along with your funds details (i.e. account number, account type, bank BSB number, account name) and the amount you are salary sacrificing before the deduction will be commenced. Funds must be deposited into a superannuation account in the employee s own name. Contributions to spouses/partners accounts attract full FBT. Further advice can be obtained from your financial advisor. Casual employees may salary sacrifice into superannuation which requires the completion of a casual salary sacrifice deduction authority form each fortnight (Annex B). Further information is available from the Salary Packaging Team, Shared Services. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 12 of 38

13 Due to restrictions and capped limits on concessional contributions, effective from 1/7/09, it is advised that you seek financial advice prior to commencing salary packaging to your fund. Please see Annex D for the list of supported funds under the SS arrangements. Additional funds can also be approved. The SS arrangements can be directed to an approved fund. Please note this superannuation is not in lieu of your existing PSS or CSS Defined Benefits superannuation schemes, PSSap or First State Super post-tax superannuation contributions. These remain compulsory contributions. Salary sacrifice can be made into PSSap and First State Super schemes Motor Vehicles Definition of a Vehicle for FBT purposes. For FBT purposes vehicles designed to carry passengers (less than 9) and have a carrying capacity of less than 1 tonne are eligible. Whilst a number of utilities and light vehicles do fit this category, a number do not. Employees should check the ATO website at for details. Luxury Vehicles Vehicles above the luxury car limit can generally be packaged though an additional tax (luxury tax) is applied. Although the limit varies on an annual basis, the value as at July 09 is $57, Note: Employees wishing to package a vehicle in excess of the limit should contact the relevant leasing company. Novated Lease Employees can choose from any approved leasing company. Where an employee decides to include a motor vehicle as part of their flexible remuneration package, the employee will need to be familiar with the use of a novated lease for this purpose. Under a novated lease arrangement if an employee s employment is terminated the employee has the obligation to pay future lease payments and/or payment of the residual value and retains the use of the vehicle as lessee. Under a novated lease, the SS (or participating ACTPS agency) does not have the cost liability of holding a lease vehicle after an employee ceases employment. If the employee leaves the ACTPS, in some cases it is possible to transfer the lease to Australian Public Service (APS) agencies, subject to approval from the leasing company and the new agency. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 13 of 38

14 Tax Ruling on Novated Leases Under Tax Ruling TR 1999/15, the Tax Commissioner has indicated that only "Fully Novated" leases will be exempt from income tax. The ruling defines Full Novation as follows Full Novation occurs where the novation agreement has the effect of transferring the rights and obligations of the lessee under the lease from the employee to the employer and the original agreements, being a finance lease and/or a sublease, are rescinded. A full novation may also be effective where it includes an agreement to enter into a further novation on termination or expiry of the novated lease." If a full novation exists and an employee leaves their employment, all future financial obligations of the motor vehicle revert to the employee and the employee is then responsible for all the obligations under the lease including all payments. Employees should be aware that payment of the residual value under the finance lease arrangement is the responsibility and liability of the employee. Once you package the vehicle, you cannot claim the business expenses associated with the vehicle as a tax deduction. Fringe Benefits on Motor Vehicles A car fringe benefit generally arises when a car, which is owned or leased by an employer, is made available for the private use of an employee. If the employer's car is garaged at an employee's house, it is regarded as having been made available for private use. Motor vehicles can only be provided through a Novated Lease. Under the basis of statutory formula basis, all running and maintenance costs can be included in the package cost for the motor vehicle(s) tax-free. Running costs include: Petrol, oil and auto club membership, vehicle repairs, tyres and service costs, comprehensive insurance, registration and third party insurance. The costs associated with a novated lease are largely influenced by the amount of kilometres travelled each FBT year (FBT Year is 1 April to 31 March). The kilometres travelled are used to determine the statutory fraction. The calculation is as follows: Less than 14,999 km 26% 15,000 to 24,999 km 20% 25,000 to 39,999 km 11% Over 40,000 kms 7% The novated lease arrangement includes provision for running expenses. Running expenses do not include payments for infringement notices, road tolls and similar items. Only items as defined in the FBT Act are legitimate expenses within a novated lease. Please refer to the ATO website at for additional information. Please note that from an administrative aspect, packaging a vehicle as a temporary employee is not practical. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 14 of 38

15 The formula for calculating the FBT benefit value is: where: A x B x C E D A is the "base value" of the car ($25000); B is the "statutory fraction" (for example, 0.20 if 23,000 km are travelled); C is the number of days during the year on which a car fringe benefit was provided in relation to the car (365); D is the number of days during the year (365); and E is the amount of any "recipient's payment" (ECM) = (0). Taxable value of benefit: $25,000 x.20 x = $5,000 Taxable Value 365 $5,000 x grossed up taxable value to SS or agency = $10,324 Tax at 46.5% = Fringe Benefits Tax (FBT) of $4801. The FBT liability is paid from pre-tax salary. It can also be fully or partially reduced by Employee Contributions (ECM) from post-tax salary. The reportable fringe benefit will appear on the payment summary at the end of the Financial Year. Motor Vehicle Running Costs For motor vehicle leases under a lease or finance only arrangement, a Motorpass fuel card is provided. This card can be used for purchases of fuel and oil and workshop repairs. The Motorpass account is paid from pre-tax salary. This card can be used at most Service Stations and repairers. A small monthly Motorpass administration fee is payable from pre-tax salary. 2.3 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 $2000, the grossed-up taxable value of those benefits will be recorded on the employee s payment summary (group certificate) for the corresponding income year (1 July to 30 June). Grossing up 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. The value of fringe benefits reported on the payment summary is known as Reportable Fringe Benefits. The ATO advises that the Reportable Fringe Benefits will not be included in the employee s assessable (or taxable) income or affect the amount of basic Medicare levy payable. The total will, however, be used to calculate the following: Medicare levy surcharge Deduction for personal superannuation contributions Tax offset for personal superannuation contributions Tax offset for contributions to spouse s superannuation Superannuation contributions and termination payments surcharge Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 15 of 38

16 Higher Education Contributions Scheme (HECS) repayments Child Support obligations Entitlement to certain income tested government benefits 2.4 Fringe Benefits Tax A typical remuneration package for employees is gross salary, which PAYG tax is payable. Fringe benefits tax makes it possible for employers to legitimately pay benefits on behalf of employees. The employer pays FBT tax rather than the employee paying PAYG. Because salary packaging is to be at no cost to the ACT Government, SS, or any ACTPS agency participating in the SS in-house arrangements, employees are required to pay for their FBT liability from their gross salary. The FBT withheld from pre-tax salary is held by the SS until paid to the ATO. The amount of FBT payable by individual employees is reconciled at the end of each FBT year. (31 March). Each FBT year is independent of each other. Salary packaging ensures the most efficient combination of benefits and salary. When considering benefits to package the pre-tax cost of the benefits is determined. Pre-tax cost of a benefit is how much gross salary is required to pay for the benefit with take home pay after allowing for PAYG tax. The gross salary required to pay for a benefit with take home pay is determined by grossing up the net cost of the benefit (or post-tax cost) at the employee's marginal tax rate. Pre-tax cost of a benefit = Post tax cost of a benefit (1 - marginal tax rate) Note: FBT is only paid from commencement date of the novated lease, i.e. pro-rata (daily basis) for the first FBT year. Any additional FBT liability incurred each FBT year as a result of insufficient FBT pre-tax salary deductions or under-estimated nominated annual kilometres will be paid by the SS and recovered from the employee s future pre-tax salary as negotiated with the employee. 2.5 Input Tax Credits and the GST A number of benefits that are commonly packaged will be subject to GST however the SS will be entitled to claim Input Credits thus negating the GST. To ensure that employees are not avoiding GST in this way, the government has introduced a second (higher) gross up rate to calculate the FBT. The effect of the higher gross up rate is to increase the FBT to cover the Inputs Tax credits that the employer claimed. Where the underlying benefit is subject to FBT the employer will be entitled to an Input Tax Credit regardless of whether or not the employer actually claims the Input Tax Credits. The entitlement means that the benefit must be grossed up at rather than the lower grossed up rate. Where Input Tax Credits are able to be claimed, SS will claim the credits and pass them back to the Salary Packaging Account and then will credit the individual employee salary packaging accounts where appropriate. In the case of novated motor leases, the fortnightly salary deduction is net of GST. In this situation, the GST claimed by the SS will be retained. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 16 of 38

17 3.0 Administration Fees The SS charges an administration fee for this salary packaging model on a cost recovery basis. This decision is based on the condition that the in-house salary packaging model must be at no cost to the ACT Government, SS or participating Agencies. Fees are not payable in advance and are only payable for the duration of the package. Note: All fees are ex-gst and included in salary package as a pre-tax cost. Laptop/Notebook Computers For reimbursement of costs over one pay a one-off fee of $25.00 (pre-tax) is payable For reimbursement of costs and lease processing there is a one-off fee of $50.00 (pre-tax) for reimbursements beyond 1 pay period. Pocket PCs and Electronic Diaries and other Small Items For reimbursement of costs there is a one-off fee of $25.00 (pre-tax). Superannuation (Electronic Funds Transfer - EFT) Fees are $5.00 (pre-tax) per fortnight ($ per annum). Superannuation (Cheque Processing) Fees are $7.00 (pre-tax) per fortnight ($ per annum). Novated Motor Vehicle Leases Fees are $10.00 (pre-tax) per fortnight ($ per annum). This fee covers management of all lease and associated payments, including FBT collection, management and reporting to staff and ACTPS Agencies. Multiple Benefits A maximum fee of $10.00 (pre-tax) per fortnight ($ per annum) applies. 4.0 Payments The SS will process payments by Electronic Funds Transfer (EFT) in the majority of cases. Cheque payment facilities are available for accounts where EFT facilities are not available. 5.0 Changing or Terminating the Package Employees can decide to terminate or amend (re-negotiate) their packaging arrangements at any time without any additional fees other than those associated with the administration of the package. There is no restriction on the number of variations to contribution rates with superannuation packaging. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 17 of 38

18 Employees who decide to terminate their motor vehicle package should be aware of all of the implications when they terminate their novated lease earlier than the agreed lease period. These details are defined in the novated lease document. When terminating a motor vehicle lease adequate notice is required to ensure effective management of the process. Where a motor vehicle lease is involved, if an employee has overspent on their package, the employee will be informed and will need to make arrangements with the SS Salary Packaging Team to repay the funds. This information will be obtained from the leasing company. If an employee has spent less than the budgeted amount, the difference will be included in calculating any termination pay the employee is entitled to and the appropriate tax will be deducted. SS must receive a signed original FBT Declaration from the employee to enable the package to be finalised where a motor vehicle is involved. The final monies payment to the employee cannot be made until the package has been reconciled and all necessary documentation is received and actioned. 6.0 The full information is contained in the Novation Deed. Leave Without Pay (LWOP) or Leave without Pay or Long Service Leave (LSL)/Annual Leave at Half-Pay Employees will need to ensure there are adequate funds in their package balance to sustain any period of LWOP or LSL/Annual leave at half-pay. If the salary packaging funds from their salary deduction are insufficient, the employee will need to make other arrangements such as terminating the lease or postponing finance repayments (in the case of laptop/notebook computers) and suspending superannuation contributions. Employees who have a salary packaging arrangement in place and are terminating their employment with the ACTPS, must contact Shared Services salary packaging. Any outstanding costs i.e. FBT arrears will be recovered from the employee prior to their cessation or from final monies payments. 7.0 Superannuation A policy statement or schedule; superannuation member or renewal advice or a letter from the fund trustees of the fund showing the amount per period, frequency of payments and due dates is required for packaging superannuation. The name of the bank and name of the account holder, account number & Bank BSB number where the payments are to be deposited will also be required. A policy, member or reference number is also required in all cases. Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 18 of 38

19 Note: You cannot package super to third party names to qualify for FBT exemption. Full FBT applies if spouse or third party names are used. 7.1 Super Surcharge Superannuation surcharge is no longer payable. 8.0 Statements Salary Packaging Statements are provided by the SS Salary Packaging Team at the end of each quarter (June, September and December) and with an annual statement in April each year for all items. 9.0 FBT Declarations Novated Motor Vehicle Leases Each FBT Year ending 31 March, employees are required to satisfy the substantiation rules, which include the completion of the Odometer Declaration, if they are packaging a vehicle. Declarations will be sent from the SS Salary Packaging Team during March each year and require completion and signature as at 31 March. They are to be returned by mail to SS Salary Packaging Team no later than 8 April each year. A copy of an FBT Declaration is shown at Annex C Contact with Salary Packaging Team Phone: (02) or internal extension 99 Fax: (02) Attention: Salary Packaging. sharedservicessalarypackaging@act.gov.au Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 19 of 38

20 Annex A Letter of Offer (SS Letterhead) [Insert: Employee s Name and Address] Dear, Offer of Salary Packaging I would like to offer you the option to undertake Salary Packaging on the terms and conditions set out in the attached Agreement and in accordance with the ACT Public Service Salary Packaging Policy and Procedures ( the Policy ). Please read the Agreement carefully. If you then decide to proceed, you must obtain financial advice before you can formally commence salary packaging, unless it is agreed that you may proceed without obtaining financial advice. If you agree to accept the terms of the Agreement, please sign and date the Agreement on page 6 and return it to Shared Services Salary Packaging Unit, ACT Treasury Directorate, GPO Box 158, Canberra City ACT 2601 and hand a copy of the Agreement to your financial adviser. The financial adviser will fill out the relevant E forms and 'sign off', after which the financial adviser will forward the signed documents to the Salary Packaging Unit. If you have any queries about the administration of your salary package, please contact the Shared Services Salary Packaging Unit. Contact details are listed on the attached Schedule 2. Set out below are your current salary, the maximum percentage of your salary you are allowed to salary sacrifice, and the minimum cash salary you must take. Employee Name: AGS Number: Agency Name: Telephone: Classification: (Please circle) Current Salary: $ Fax: Executive Maximum percentage allowed to be Salary Packaged: 100% Non-Executive Minimum which must be taken as Cash Salary: $50 per fortnight Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 20 of 38

21 Salary Packaging Agreement This Agreement is Between: AUSTRALIAN CAPITAL TERRITORY a body politic established under the Australian Capital Territory (Self-Government) Act 1988 ( the Territory ) represented by Shared Services ( the employer ) And: ( the employee ). The parties agree as follows: A. Employee Salary i) For the purposes of salary packaging, salary is defined as the employee s gross pre-tax salary at the date of the commencement of package excluding overtime, higher duties or other allowances or entitlements, unless these have been converted to an annualised salary. ii) iii) iv) The employee may elect to package up to 100% of their available gross salary, or in the case of employees working in Public Benevolent Institutions, a maximum of 75% of an employee s gross pre-tax salary, provided that the benefit items which normally incur Fringe Benefits Tax ( FBT ) do not incur more than $17,000 grossed up taxable value per FBT year, unless the responsible Chief Executive (or his or her delegate) gives prior written permission for the named employee s entitlements to exceed $17,000 grossed up taxable value in any FBT year. The employer will pay the remainder of the employee's salary as cash salary fortnightly. The employee may elect to include one or more of the package items listed on the attached Schedule 1 in their salary package, provided the total value of the items to be packaged does not exceed the amount calculated in accordance with point (ii) above. v) The employee s participation in salary packaging will be at no cost to the employer. vi) The employee must pay FBT or reimburse the employer the amount of any liability for any tax, charges, duty or other payments (including salary packaging administration fees) payable by the employer which arise out of, or are in any way connected with, this Agreement. This includes any tax, charges, duty or other payment which becomes payable as the result of the amendment, introduction or coming into effect of any legislation. If any liability amount remains unpaid after fourteen (14) days of the employee being notified of the amount the employer may deduct the total amount from the next available payment of salary or by any other agreeable arrangement. B. Duration of the Agreement i) This Agreement will commence on the first available pay period after the date it is signed and after the processing of the necessary documentation by both parties. ii) The Agreement will remain in force on an ongoing basis providing the employee remains an eligible employee, unless either party notifies the other in writing of their decision to withdraw from the agreement. C. Financial Advice i) The employee must obtain and provide evidence of financial advice about the structure of their proposed salary package before they can participate in salary packaging, unless the Chief Executive (or his or her delegate) agrees that the employee may proceed without obtaining financial advice. This advice must be obtained from a suitably qualified and independent financial adviser accredited by a recognized professional association (such as the Financial Planning Association). Requests for Waiver of Obtaining Financial Advice should be made to the appropriate delegate for your directorate. ii) I also acknowledge that I must advise the Salary Packaging Unit of any variation to my pay (e.g. leave without pay, industrial action, change in other deductions, etc), particularly if I am salary Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 21 of 38

22 packaging 100% of my pay. Failure to do so will result in my salary packaging arrangements being ceased immediately and not recommenced until I have requested this in writing through the Salary Packaging Unit and recovery of overpaid monies has taken place. iii) The employee must direct any queries about salary packaging and associated issues such as superannuation, compensation, taxation and administration to an accredited financial adviser or the Salary Packaging team, Shared Services. D. Review of the Salary Package i) An employee may review the components of his or her salary package and vary their package items at any time. If an employee decides to vary his or her salary package it is recommended, before doing so, that the employee seek advice from a qualified and independent financial adviser. ii) The employee is entitled to have the components of his or her salary package reviewed if the employer s FBT status changes. E. Administration i) Shared Services has been appointed by the Territory to administer salary packaging arrangements in consultation with the employer. The Shared Services Salary Packaging Unit is the approved Salary Packaging Administration Provider ( the provider ) to provide these services to eligible employees. ii) iii) iv) If the employee decides to proceed, the Shared Services Salary Packaging Unit will charge an agreed fee for administering selected package payments made under this Agreement. The level of fees depends on the type and number of items packaged. The employer will hold employee salary packaged monies in a salary packaging specific bank account ( the Account ) established with the Territory s nominated Bank. The employee acknowledges that from the time at which salary packaged monies are paid into the Account, all disbursements/drawdowns (or the omission of disbursements/drawdowns) from the Account are the responsibility of Shared Services. The employee forever releases the Territory from any responsibility relating to disbursements/drawdowns (or the omission of disbursements/drawdowns) from the Account. The employee must ensure that sufficient funds are available (in the Account) to enable all commitments, including FBT liability, to be met. v) The Shared Services Salary Packaging Unit, as Salary Packaging Administration Provider, will provide a reconciliation of FBT owed by the employee (to both the employee and employer) at the end of the FBT year (the 12-month period ending 31 March) when any outstanding FBT must be paid in full by the employee. vi) This Agreement and associated publications, has been prepared without consideration of the particular investment objectives, financial situation and needs of recipients. In all cases, recipients should conduct their own investigation and analysis of the information contained in this publication. No recipient should act on the basis of any matter contained in this publication without considering and, if necessary, taking appropriate legal, financial or other professional advice upon the recipient s own particular circumstances. Each employee who wishes to take advantage of salary packaging is required to obtain financial advice, unless the Chief Executive (or his or her delegate) agrees that the employee may proceed without obtaining financial advice. F. Disclaimer i) This Agreement and associated publications, has been prepared without consideration of the particular investment objectives, financial situation and needs of recipients. In all cases, recipients should conduct their own investigation and analysis of the information contained in this publication. No recipient should act on the basis of any matter contained in this publication without considering Shared Services Salary Packaging Manual Version 3.8 Issued: 4 July 2011 Page 22 of 38