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With SeQoya you are way ahead!
Two effective yardsticks in measuring the financial benefit from salary packaging are "packaging benefit" and "equivalent salary". Packaging benefit is the increase in net take-home pay (i.e. disposable income) resulting from salary packaging. Equivalent salary ask the question "what salary must the employee earn if the employee moved to an employer who does not provide salary?". The following representative examples use both criteria. The examples show the packaging benefit for a number of individual benefits besides typical packages for the four tax entities: full FBT employer, $17,000 FBT exempt threshold employer (NFP hospitals), $30,000 FBT exempt threshold employer (charitable organisations) and a rebatable organisation - (NFP schools & NFP training entities).
The following examples are included:
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Remuneration: Salary $100,000 plus 9% compulsory superannuation.
Benefits: A $35,000 novated lease vehicle, financed over 4 years with lease instalment $660 per month, operating costs $6770 p.a. Car travels 20,000 kms p.a.
Input tax credits is claimed by employer and the credit obtained is passed to the employee
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Non-Packaged
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Packaged
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Total Package
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109,000.00
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109,000.00
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Superannuation
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9,000.00
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9,000.00
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Benefits Packaged
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Novated Lease
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13,360.00
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Fringe Benefits Tax
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6,720.60
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Pre-tax Salary
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100,000.00
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79,919.40
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Tax & Medicare
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29,350.00
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21,016.55
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Novated Lease
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14,696.00
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Net Income
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55,954.00
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58,902.85
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Packaging Benefit - increase in Net Income
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2,948.85
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Reportable Fringe Benefits
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13,084.40
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After tax benefit from salary packaging is $2,948.85 p.a.
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The Equivalent Salary* due to salary packaging is $111,658 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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As the employee's Pre-tax Salary is below the maximun tax salary level a higher Packaging Benefit is obtained where the cost of the novated lease is partly paid post-tax - sufficient to reduce fringe benefits tax to zero. For a comparative example with "employee contribution" please refer to Example 2
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Remuneration: Salary $100,000 plus 9% compulsory superannuation.
Benefits: A $35,000 novated lease vehicle, financed over 4 years with lease instalment $660 per month, operating costs $6770 p.a. Car travels 20,000 kms p.a.
Input tax credits is claimed by employer and the credit obtained is passed to the employee
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Non-Packaged
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Packaged
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Total Package
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109,000.00
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109,000.00
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Superannuation
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9,000.00
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9,000.00
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Benefits Packaged
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Novated Lease
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6,996.36
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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100,000.00
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93,003.64
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Tax & Medicare
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29,350.00
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26,446.51
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Novated Lease
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14,696.00
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7,000.00
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Net Income
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55,954.00
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59,557.13
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Packaging Benefit - increase in Net Income
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3,603.13
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $3,603.13 p.a.
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The Equivalent Salary* due to salary packaging is $113,784.07 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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The employee is charged GST on the employee's contribution - post-tax amount to reduce the taxable value to zero and consequenty the fringe benefits tax is zero.
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Remuneration: Salary $40,000 plus 9% compulsory superannuation.
Benefits: A $35,000 novated lease vehicle, financed over 4 years with lease instalment $660 per month, operating costs $6770 p.a. Car travels 20,000 kms p.a.
Input tax credits is claimed by employer and the credit obtained is passed to the employee
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Non-Packaged
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Packaged
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Total Package
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43,600.00
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43,600.00
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Superannuation
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3,600.00
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3,600.00
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Benefits Packaged
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Novated Lease
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6,996.36
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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40,000.00
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33,003.64
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Tax & Medicare
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7,950.00
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5,746.14
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Novated Lease
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14,696.00
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7,000.00
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Net Income
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17,354.00
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20,257.50
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Packaging Benefit - increase in Net Income
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2,903.50
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $2,903.50 p.a.
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The Equivalent Salary* due to salary packaging is $46,753 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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The employee is charged GST on the employee's contribution - post-tax amount to reduce the taxable value to zero and consequenty the fringe benefits tax is zero.
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Remuneration: Empoyee's salary $100,000 plus 9% compulsory superannuation.
Benefits: Packaging associate's car valued at $10,000. Instalment $732 per month (includes operating costs $4825 p.a). Car travels 12,000 kms p.a.
Associate has ABN and is not registered for GST.
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Non-Packaged
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Packaged
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Total Package
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109,000.00
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109,000.00
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Superannuation
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9,000.00
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9,000.00
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Benefits Packaged
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Associate Lease
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6,184.80
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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100,000.00
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93,815.20
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Tax & Medicare
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29,350.00
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26,783.31
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Associate Lease
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8,784.80
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2,600.00
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Net Income
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61,865.20
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64,431.89
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Packaging Benefit - increase in Net Income
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2,566.69
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $2,566.69 p.a.
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The Equivalent Salary* due to salary packaging is $113.229 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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The employee is charged GST on the employee's contribution - post-tax amount to reduce the taxable value to zero and consequenty the fringe benefits tax is zero.
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Remuneration: Empoyee's salary $80,000 plus 9% compulsory superannuation.
Benefits: Laptop computer value $2,200.
Input tax credit is claimed by employer and credit is passed-on to the employyee.
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Non-Packaged
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Packaged
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Total Package
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87,200.00
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87,200.00
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Superannuation
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7,200.00
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7,200.00
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Benefits Packaged
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Laptop computer
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2,000.00
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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80,000.00
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78,000.00
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Tax & Medicare
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21,050.00
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20,220.00
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Laptop computer
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2,200.00
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0.00
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Net Income
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56,750.00
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57,780.00
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Packaging Benefit - increase in Net Income
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1,030.00
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $1,030.00 p.a.
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The Equivalent Salary* due to salary packaging is $88,567 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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Effectively, the cost of the laptop to the employee is approximately half the purchase price..
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Remuneration: Salary $100,000 plus 9% compulsory superannuation.
Benefits: LAFHA for a full year for 2 adults and 1 child. Accommodation $350 per week and allowance for extra food cost for living away from home $239 per week - limited to not incur fringe benefits tax.
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Non-Packaged
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Packaged
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Total Package
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109,000.00
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109,000.00
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Superannuation
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9,000.00
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9,000.00
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Benefits Packaged
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LAFHA
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30,796.29
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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100,000.00
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69,203.71
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Tax & Medicare
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29,350.00
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17,149.17
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LAFHA
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30,796.29
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Net Income
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39,853.71
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52,054.54
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Packaging Benefit - increase in Net Income
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12,200.83
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Reportable Fringe Benefits
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13,084.40
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After tax benefit from salary packaging is $12,200.83 p.a.
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The Equivalent Salary* due to salary packaging is $129,103 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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The food costs element is set according to the rates issues by the ATO and indexed April each year. A food-costs allowance above this rate will attract FBT.
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Remuneration: Salary $80,000 plus 9% compulsory superannuation.
Benefits: The employer supplies the employee with products it manufactures to the value of $1,000.
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Non-Packaged
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Packaged
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Total Package
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87,200.00
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87,200.00
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Superannuation
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7,200.00
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7,200.00
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Benefits Packaged
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In-house products
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1,000.00
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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80,000.00
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79,000.00
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Tax & Medicare
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21,050.00
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20,635.00
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In-house products
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1,000.00
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Net Income
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57,950.00
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58,365.00
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Packaging Benefit - increase in Net Income
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415.00
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $415.00 p.a.
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The Equivalent Salary* due to salary packaging is $87,883 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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From April 1st 2007 the in-house benefit limit increased to $1,000. An employer can provide products and services to this value without incurring FBT.
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Remuneration: Salary $140,000 plus 12% superannuation.
Benefits: A $37,870 novated lease vehicle, fully maintained, financed over 3 years with lease instalment $1209 per month, operating costs $7,692 p.a. Car travels 22,000 kms p.a.
Associate lease, car valued at $12,800, instalment $882 per month (includes operating costs), budget 16,000 kms p.a.
Laptop computer $2,435 (including software)
Input tax credits is claimed by employer and the credit obtained is passed to the employee
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Non-Packaged
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Packaged
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Total Package
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157,248.00
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157,248.00
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Compulsory Superannuation
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10,822.32
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8,870.91
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Additional Employer Superannuation/td>
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6025.68
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7,977.09
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Employee Salary Sacrifice Superannuation
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20,152.00
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20,152.00
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Benefits Packaged
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Novated Lease
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12,406.85
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Associate Lease
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7,061.84
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Laptop computer
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2,213.64
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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120,248.00
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98,565.67
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Tax & Medicare
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40,832.48
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30,699.10
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Novated Lease
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22,198.96
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7,774.00
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Associate Lease
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9,621.84
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2560.00
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Laptop Computer
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2,435.00
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Net Income
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45,159.72
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57,532.57
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Packaging Benefit - increase in Net Income
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12,372.85
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Reportable Fringe Benefits
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0.0
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After tax benefit from salary packaging is $12,372.85 p.a.
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The Equivalent Salary* due to salary packaging is $196,818 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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There is no limit other than sufficient salary to cover the cost of the benefits plus superannuation. Obviously packaging FBT exempt benefits such as a laptop and concessionally taxed benefits such as novated and associate lease gives maximum packaging benefit. There is a limit of one packaged laptop per employee per annum.
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Remuneration: Salary $70,000 - superannuation is ignored in package
Benefits: Packaging mortgage to the maximum no-FBT limit. (The hospital has a non-for-profit rating.)
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Non-Packaged
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Packaged
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Total Package
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70,000.00
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70,000.00
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Superannuation
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0.00
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0.00
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Benefits Packaged
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Mortgage
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9,095.00
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Fringe Benefits Tax
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0.17
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Pre-tax Salary
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70,000.00
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60,904.83
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Tax & Medicare
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17,400.00
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14,535.02
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Mortgage
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9,095.00
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Net Income
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43,505.00
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46,369.81
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Packaging Benefit - increase in Net Income
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2,864.81
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $2,864.81 p.a.
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The Equivalent Salary* due to salary packaging is $74,182 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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This hospital is not under NSW Health where "share of savings" takes place. Please refer to Example 10 for a typical NSW Health package.
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Remuneration: Salary $70,000 - superannuation is ignored in package
Benefits: Packaging mortgage to the maximum no-FBT limit. (The hospital has a non-for-profit rating.) In compliance with NSW Health guidelines the packaging benefit is shared 50/50 with the employer.
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Non-Packaged
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Packaged
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Total Package
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70,000.00
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70,000.00
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Superannuation
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0.00
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0.00
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Benefits Packaged
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Mortgage
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9,095.00
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Fringe Benefits Tax
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0.00
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Empoyer Share of Savings
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1,700.24
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Pre-tax Salary
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70,000.00
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59,204.76
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Tax & Medicare
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17,400.00
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13,999.50
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Mortgage
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9,095.00
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Net Income
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43,505.00
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45,205.26
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Packaging Benefit - increase in Net Income
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1,700.26
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $1,700.26 p.a.
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The Equivalent Salary* due to salary packaging is $72,482 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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The packaging report shows the "share of savings" as a pre-tax deduction equal in face value to the post-tax packaging benefit.
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Remuneration: Salary $40,000 plus 9% superannuation
Benefits: Packaging mortgage to the maximum no-FBT limit.
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Non-Packaged
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Packaged
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Total Package
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43,600.00
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43,600.00
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Superannuation
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3,600.00
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3,600.00
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Benefits Packaged
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Mortgage
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16,050.00
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Fringe Benefits Tax
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0.00
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Empoyer Share of Savings
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0.00
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Pre-tax Salary
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40,000.00
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23,949.69
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Tax & Medicare
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7,950.00
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2,774.69
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Mortgage
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16,050.00
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Net Income
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16,000
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21,175.00
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Packaging Benefit - increase in Net Income
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5,175.00
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Reportable Fringe Benefits
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30,000.00
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After tax benefit from salary packaging is $5,175.00 p.a.
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The Equivalent Salary* due to salary packaging is $51,007 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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Some PBI organisations have a "share" policy where the packaging benefit is partly shared with the employer. The share ration mat be 50/50 25/75.
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Remuneration: Salary $55,000 gross
Benefits: Employee elects to package $5,200 to superannuation plus a laptop computer costing $2,200 (GST inclusive).
Input tax credits is claimed by employer and the credit obtained is passed to the employee
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Non-Packaged
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Packaged
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Total Package
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55,000.00
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55,000.00
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Superannuation
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5,200.00
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Benefits Packaged
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Laptop
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2,000.00
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Fringe Benefits Tax
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0.00
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Pre-tax Salary
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55,000.00
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47,800.00
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Tax & Medicare
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12,675.00
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10,407.00
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Superannuation
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5,200.00
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Laptop
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2,200.00
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Net Income
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34,925.00
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37,393.00
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Packaging Benefit - excluding extra super tax
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2,468.00
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Packaging Benefit - including extra super tax
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|
1,688.00
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Reportable Fringe Benefits
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0.00
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After tax benefit from salary packaging is $2,468.00 p.a.
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The Equivalent Salary* due to salary packaging is $57,172 p.a.
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* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.
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Comments
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Most employers request to exclude superannuation in determining the packaging benefit as it is now well accepted that all employers offer employees the option to salary sacrifice to superannuation.
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