12 October 2022

Salary Sacrificing with Shaun Armitage

One issue that frequently causes confusion for employers is the difference between the employee salary sacrificing in order to receive a fringe benefit and making an employee contribution towards the value of that fringe benefit.

It can be helpful to verify the employer’s understanding of the different tax treatment and that each of the two categories have been correctly recorded in their records, in order to correctly report their FBT obligations.

Where the employee has salary sacrificed on a pre-tax basis towards the fringe benefit that has been provided, they have agreed to give up a portion of their gross salary on a pre-tax basis and receive the relevant fringe benefit instead.

An employee contribution is made from post-tax income. That is, the employee will need to recognise the gross salary and wages as income in their tax return. However, the payment of an after-tax employee contribution would generally have the effect of reducing the taxable value of the fringe benefit that was provided to them by the employer.


Considering Salary Packaging Opportunities

When considering salary packaging opportunities, or the provision of fringe benefits to employees, many employers focus on fringe benefits that can be exempt under the otherwise deductible or minor and infrequent rules, without considering a broader range of fringe benefits that could potentially be provided without triggering FBT.

There are many expenses which could be incurred by employees that would not be deductible to the employee. However, if the same expenses were incurred by the employer and provided to an employee as a fringe benefit, it could qualify as an exempt fringe benefit.

Where the fringe benefit relates to a work-related medical examination, work-related medical screening, work-related preventative health care, work-related counselling or migrant language training, the provision of that fringe benefit could be exempt, providing the qualifying criteria are satisfied.

In relation to relocation expenses when an employee changes their place of residence for work purposes, either a transfer with an existing employer or starting employment with a new employer, any relocation expenses incurred by the individual taxpayer would not be deductible to that individual as the expenses would be considered as private in nature. Alternatively, if the employer pays for some or all of the relocation expenses, that would be a fringe benefit and would be deductible to the employer. However, there are FBT concessions available on eligible relocation expenses paid for employees who are required to change their place of residence for work.

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