Salary Packaging Information Sheet General Information (Frequently Asked Questions)

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1 Information Sheet General Information (Frequently Asked Questions) PO Box 281, Geelong VIC 3220 What is? is an arrangement between the employer and employee that involves the employee agreeing to forego part of their salary or earnings in return for a benefit of the same value. When you Salary Package, money is deducted from your pay prior to tax being taken out. You only pay PAYG tax on the remaining portion of your gross pay, not the money you have Salary Packaged. As a result, the tax deducted from your pay is significantly reduced. Australian taxation legislation provides significant tax concessions for hospitals and not-for-profit organisations, including Barwon Health. One such concession is an exemption from Fringe Benefits Tax (FBT), referred to as Capped Items. This means that Barwon Health can pay/reimburse an employee s personal expenses (maximum of $9,010 per Fringe Benefit Tax (FBT) year = $ per fortnight/ $ per month) without employees having to pay any tax on this money. This tax-free amount is in addition to your normal tax-free threshold for salary. There is a limit on how much you can Salary Package to capped Items (please refer to the information sheet on capped items for details). The Australian Taxation Office (ATO) has set the limit per FBT year to $9,010; this is based on a full FBT year. The FBT year is 1 April to 31 March and the team will work with you to ensure you Salary Package within the ATO limits to maximise your benefit. There are a number of packaging options available to Barwon Health staff, all of which have documents/information required by legislation or Barwon Health policy. The documentation requirement for each type of packaging is stated in the detailed information sheets. How is my private information treated? All information provided to Barwon Health is treated with the strictest of confidence. Your Information is securely retained by us and will only be given to a third party with your consent or in line with Barwon Health s Privacy Policy (refer to Barwon Health s website). Personal information will only be available over the phone once we undertake an identity check of the caller and for security purposes, all changes to (including bank accounts) must be submitted in writing, forms and information are available from Workforce Reception and on Barwon Health s intranet site Wavelength. Who can participate in? Barwon Health allows all staff to Salary Package, including casual staff. How do I learn more about each benefit? Information sheets regarding the benefits are available to Barwon Health staff on Wavelength, and on the kiosk, and from Human Resources. If you require additional information, please contact the department via on salarypackaginghelpdesk@barwonhealth.org.au. How do I get started? If you wish to Salary Package you are required to: Complete the Setup form. Where possible, collate the evidence/substantiation of the personal expenses that you are packaging. Refer to the Information sheets for each type of packaging, for details of the documentation required. SP 0001 Version 2 Feb 2014

2 Contact the Helpdesk to make an appointment with a team member, to provide them with your setup documents and to ask any questions. At this appointment the consultant will check your documents and will go over the details of your packaging arrangements to confirm them with you. An Employee Package Authorisation (EPA) will be provided to you for your records, the consultant will go over this document with you at the appointment. Please ask the consultant to explain anything that you are unclear about. What happens on pay day? Once starts, you will have a deduction taken out of your gross salary per pay. This pre-tax deduction will generally be made up of two parts: An amount for salary packaging; Administration fee. The amount is deducted from your fortnightly/monthly pay and once substantiation and/or reimbursement claim is provided, will be reimbursed either to you or as a direct payment. Please Note: payment or reimbursement will not occur until substantiation and/or reimbursement claim is provided and the amount paid will only be equal to the amount deducted from your pay. Payments will not be made in advance. Example (Case Study) Below is a case study of Kevin s pay without and with. Kevin earns $50,000 per year before tax (exclusive of superannuation) and has the following fortnightly expenses: mortgage payment of $ After Tax Earnings Without After Tax Earnings With Kevin earns $50, Kevin earns He then salary packages: Mortgage ($ x 26) Admin Fees (2.5% x 26) $50, $ 9, $ Total taxable income: $50, Total taxable income: $40, Tax paid: (based on ATO tax scales ) $ 7, Tax paid: (based on ATO tax scales ) $ 4, Kevin brings home: From his take home pay, Kevin pays: Mortgage ($ x 26) $42, $ 9, Kevin brings home: $35, Cash remaining: $33, Cash remaining: $35, If Kevin takes up the salary-packaging program, he will have an extra $2, in his pocket every year (that s $ extra each fortnight). This is because personal expenses that are Salary Packaged do NOT attract PAYG tax, whereas an employee s pay which has not be Salary Packaged is subject to PAYG tax. SP 0001 Version 2 Feb 2014

3 What does it cost to Salary Package? Annual packaging fee A $ fee is applicable once per annum and is deducted from your first pay following the set up of your salary packaging each FBT year. Administration fee An ongoing administration fee of 2.5% on the total of all benefits packaged. NAB card fee NAB card fees are $13 per card per annum and is deducted from your first pay following the set up of your Salary Packaging each FBT year. Amendment/repackage fee A $50.00 fee is applicable to the first amendment when an employee requests to change their arrangements, which results in a change to their deduction from their pay. Additional amendments will incur a $100 fee. Variation fee A $50.00 fee is applicable when an employee request to amend arrangements between expensive items, which does not result in a change in the payroll deduction. All employees are allowed 1 free variation per FBT year. Fees are subject to an annual review. Staff will be provided with a period of 4 weeks notice should there be a change to the fees. Am I able to Salary Package the capped amount over a shorter period of time? You can elect to have your deducted over a shorter period than the full FBT year by completing the necessary fields on the Application form. Can I change my arrangements? Yes, if your personal circumstances change, you can change your arrangements, by using the Salary Packaging Amendment form. If needed, you can make an appointment with a consultant to discuss the changes that you require. Please note that you will be charged an administration fee for changes to your package arrangements. What happens to my money if I have a balance at the end of the FBT year (31 st March)? Capped Items Any balance at the end of the FBT year for capped items ($9,010.00) will be automatically reimbursed via payroll and will be taxed at the appropriate PAYG amount. Non Capped Items If an employee has a balance for non capped items at the end of the FBT year and that item is packaged in the following year, the balance will be transferred into the new FBT year and be available to claim against. If the item is not packaged in the new FBT year, the balance will be reimbursed via the payroll department and will be taxed at the appropriate PAYG amount. At no time will substantiation be accepted for capped items after the 31 st March. It is a breach of ATO Legislation for Barwon Health to make a payment after the end of the FBT year and therefore under no circumstances will the Salary Packaging department be able to process a transaction following the 31 st March. Staff are encouraged to ensure that they have provided the department sufficient substantiation and/or reimbursement claims well in advance of the end of the FBT year, to avoid delays or documentation not being received in time to be processed. Do I need to reapply for each year? Yes, you will be required to advise the department of your intentions to Salary Package each FBT year.

4 Prior to the end of each FBT year, you will be given the opportunity to roll over your current arrangements into the coming FBT year. If you wish to continue with the arrangement that you currently have in place, you will be sent information regarding your current details, you will be required to check your details are correct and if yes sign the form and provide any additional substantiation (if required). Please note: If you have arrangements for items such as Mortgage payments, rental payments or loan payments, you will not be required to provide substantiation again, however you will need to complete and sign a certification, undertaking that your arrangements have not changed. If you wish to change your package arrangements for the next FBT year, you will need to complete an authorisation form to advise of the full package arrangement that you would like to set up for the new FBT year. Why should I seek financial advice? Barwon Health encourages staff to obtain independent financial advice to ensure that suits their personal and financial requirements. Some issues may arise where an individual misjudges their personal circumstances when arranging their, not leaving them with enough take home pay to meet their other general living expenses/commitments, or it may be found that has an impact on their income tax at the end of the financial year The Barwon Health consultants are available for individual appointments to assist with enquiries regarding ; however, they are not qualified to provide financial advice. What is the effect on my Payment Summary? Any variation to your gross salary, as a result of substituting Salary Packaged capped items for cash salary, will be reflected on your Payment Summary, with the gross salary and PAYG tax being reduced accordingly. In addition, the grossed up taxable value of capped items packaged will appear on your Payment Summary as a reportable fringe benefit. It is important to understand that you are not subject to income tax on this value, however, the reportable fringe benefit amount may be taken into account in calculating certain surcharges and levies, such as: Superannuation contributions surcharge, Child Support obligations, Medicare levy surcharge, Higher Education Contribution Scheme repayments (HECS), and Rebate for spouse remuneration spouse superannuation contributions. Seeking financial advice will assist in ensuring that you are aware of the impact that salary packaging may have on your personal income tax situation. What if I don t want to Salary Package? There is no obligation for staff to Salary Package. If at any time in the future you decide that you do wish to salary package, you simply need to contact the department to make an appointment with a team member. Do I need to enter into an agreement to Salary Package? Yes, when you complete the Setup form, you are required to sign the agreement that is part of the application. Please make yourself familiar with the conditions of with Barwon Health prior to signing the agreement. Please note that the agreement does not tie you into for a specific term, you are able to amend, or opt out of should you find that you need to. What happens if I take leave without pay? (e.g. unpaid parental leave) If you go on leave without pay, your Salary Package will need to be cancelled for the period that you will not be paid. To ensure that your arrangements are treated appropriately, please advise the department of your plans for leave without pay prior to it starting. When you recommence employment, you will be required to contact the department to arrange for your packaging arrangements to be reinstated. Many staff extent or shorten their leave, therefore the reinstatement of plans is not automated or based on planned return dates.

5 Who do I contact if I have any questions about Salary packaging? If you have any questions regarding, you are to contact the Barwon Health department via Salarypackaginghelpdesk@barwonhealth.org.au or via contact us in the online Kiosk.