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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:

• Example 1:   Novated Lease
• Example 2:   Novated Lease with Employee Contribution
• Example 3:   Novated Lease with Employee Contribution - lower salary
• Example 4:   Associate Lease with Employee Contribution 
• Example 5:   Laptop
• Example 6:   Living-away-from-home-allowance
• Example 7:   In-house Expense Benefit
• Example 8:   A Busy "Live" Package
• Example 9:   Packaging for Hospitals (NFP)
• Example 10:  Packaging for NSW Area Health Services (NFP)
• Example 11:  Packaging for PBI
• Example 12:  Superannuation

Example 1: Novated Lease

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

	Non-Packaged	Packaged
Total Package	109,000.00	109,000.00
Superannuation	9,000.00	9,000.00
Benefits Packaged
Novated Lease		13,360.00
Fringe Benefits Tax		6,720.60
Pre-tax Salary	100,000.00	79,919.40
Tax & Medicare	29,350.00	21,016.55
Novated Lease	14,696.00
Net Income	55,954.00	58,902.85
Packaging Benefit - increase in Net Income		2,948.85
Reportable Fringe Benefits		13,084.40
After tax benefit from salary packaging is $2,948.85 p.a.
The Equivalent Salary* due to salary packaging is $111,658 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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

 

 

 

Example 2: Novated Lease with Employee Contribution

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

	Non-Packaged	Packaged
Total Package	109,000.00	109,000.00
Superannuation	9,000.00	9,000.00
Benefits Packaged
Novated Lease		6,996.36
Fringe Benefits Tax		0.00
Pre-tax Salary	100,000.00	93,003.64
Tax & Medicare	29,350.00	26,446.51
Novated Lease	14,696.00	7,000.00
Net Income	55,954.00	59,557.13
Packaging Benefit - increase in Net Income		3,603.13
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $3,603.13 p.a.
The Equivalent Salary* due to salary packaging is $113,784.07 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

Example 3: Novated Lease with Employee Contribution - Salary = $40k p.a.

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

	Non-Packaged	Packaged
Total Package	43,600.00	43,600.00
Superannuation	3,600.00	3,600.00
Benefits Packaged
Novated Lease		6,996.36
Fringe Benefits Tax		0.00
Pre-tax Salary	40,000.00	33,003.64
Tax & Medicare	7,950.00	5,746.14
Novated Lease	14,696.00	7,000.00
Net Income	17,354.00	20,257.50
Packaging Benefit - increase in Net Income		2,903.50
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $2,903.50 p.a.
The Equivalent Salary* due to salary packaging is $46,753 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

Example 4: Associate Lease with Employee Contribution

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.

	Non-Packaged	Packaged
Total Package	109,000.00	109,000.00
Superannuation	9,000.00	9,000.00
Benefits Packaged
Associate Lease		6,184.80
Fringe Benefits Tax		0.00
Pre-tax Salary	100,000.00	93,815.20
Tax & Medicare	29,350.00	26,783.31
Associate Lease	8,784.80	2,600.00
Net Income	61,865.20	64,431.89
Packaging Benefit - increase in Net Income		2,566.69
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $2,566.69 p.a.
The Equivalent Salary* due to salary packaging is $113.229 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

Example 5: Laptop Computer

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.

	Non-Packaged	Packaged
Total Package	87,200.00	87,200.00
Superannuation	7,200.00	7,200.00
Benefits Packaged
Laptop computer		2,000.00
Fringe Benefits Tax		0.00
Pre-tax Salary	80,000.00	78,000.00
Tax & Medicare	21,050.00	20,220.00
Laptop computer	2,200.00	0.00
Net Income	56,750.00	57,780.00
Packaging Benefit - increase in Net Income		1,030.00
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $1,030.00 p.a.
The Equivalent Salary* due to salary packaging is $88,567 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

Effectively, the cost of the laptop to the employee is approximately half the purchase price..

 

 

Example 6: Living-away-from-home-allowance (LAFHA

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.

	Non-Packaged	Packaged
Total Package	109,000.00	109,000.00
Superannuation	9,000.00	9,000.00
Benefits Packaged
LAFHA		30,796.29
Fringe Benefits Tax		0.00
Pre-tax Salary	100,000.00	69,203.71
Tax & Medicare	29,350.00	17,149.17
LAFHA	30,796.29
Net Income	39,853.71	52,054.54
Packaging Benefit - increase in Net Income		12,200.83
Reportable Fringe Benefits		13,084.40
After tax benefit from salary packaging is $12,200.83 p.a.
The Equivalent Salary* due to salary packaging is $129,103 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

 

Example 7: In-house Expense Benefit

Remuneration: Salary $80,000 plus 9% compulsory superannuation. Benefits: The employer supplies the employee with products it manufactures to the value of $1,000.

	Non-Packaged	Packaged
Total Package	87,200.00	87,200.00
Superannuation	7,200.00	7,200.00
Benefits Packaged
In-house products		1,000.00
Fringe Benefits Tax		0.00
Pre-tax Salary	80,000.00	79,000.00
Tax & Medicare	21,050.00	20,635.00
In-house products	1,000.00
Net Income	57,950.00	58,365.00
Packaging Benefit - increase in Net Income		415.00
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $415.00 p.a.
The Equivalent Salary* due to salary packaging is $87,883 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

 

Example 8: A Busy "Live" Package

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

	Non-Packaged	Packaged
Total Package	157,248.00	157,248.00
Compulsory Superannuation	10,822.32	8,870.91
Additional Employer Superannuation/td>	6025.68	7,977.09
Employee Salary Sacrifice Superannuation	20,152.00	20,152.00
Benefits Packaged
Novated Lease		12,406.85
Associate Lease		7,061.84
Laptop computer		2,213.64
Fringe Benefits Tax		0.00
Pre-tax Salary	120,248.00	98,565.67
Tax & Medicare	40,832.48	30,699.10
Novated Lease	22,198.96	7,774.00
Associate Lease	9,621.84	2560.00
Laptop Computer	2,435.00
Net Income	45,159.72	57,532.57
Packaging Benefit - increase in Net Income		12,372.85
Reportable Fringe Benefits		0.0
After tax benefit from salary packaging is $12,372.85 p.a.
The Equivalent Salary* due to salary packaging is $196,818 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

Example 9: Packaging for Hospitals (NFP)

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.)

	Non-Packaged	Packaged
Total Package	70,000.00	70,000.00
Superannuation	0.00	0.00
Benefits Packaged
Mortgage		9,095.00
Fringe Benefits Tax		0.17
Pre-tax Salary	70,000.00	60,904.83
Tax & Medicare	17,400.00	14,535.02
Mortgage	9,095.00
Net Income	43,505.00	46,369.81
Packaging Benefit - increase in Net Income		2,864.81
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $2,864.81 p.a.
The Equivalent Salary* due to salary packaging is $74,182 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

This hospital is not under NSW Health where "share of savings" takes place. Please refer to Example 10 for a typical NSW Health package.

 

 

 

Example 10: Packaging for NSW Area Health Services(NFP)

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.

	Non-Packaged	Packaged
Total Package	70,000.00	70,000.00
Superannuation	0.00	0.00
Benefits Packaged
Mortgage		9,095.00
Fringe Benefits Tax		0.00
Empoyer Share of Savings		1,700.24
Pre-tax Salary	70,000.00	59,204.76
Tax & Medicare	17,400.00	13,999.50
Mortgage	9,095.00
Net Income	43,505.00	45,205.26
Packaging Benefit - increase in Net Income		1,700.26
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $1,700.26 p.a.
The Equivalent Salary* due to salary packaging is $72,482 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

The packaging report shows the "share of savings" as a pre-tax deduction equal in face value to the post-tax packaging benefit.

 

 

 

Example 11: Packaging for a PBI (NFP)

Remuneration: Salary $40,000 plus 9% superannuation Benefits: Packaging mortgage to the maximum no-FBT limit.

	Non-Packaged	Packaged
Total Package	43,600.00	43,600.00
Superannuation	3,600.00	3,600.00
Benefits Packaged
Mortgage		16,050.00
Fringe Benefits Tax		0.00
Empoyer Share of Savings		0.00
Pre-tax Salary	40,000.00	23,949.69
Tax & Medicare	7,950.00	2,774.69
Mortgage	16,050.00
Net Income	16,000	21,175.00
Packaging Benefit - increase in Net Income		5,175.00
Reportable Fringe Benefits		30,000.00
After tax benefit from salary packaging is $5,175.00 p.a.
The Equivalent Salary* due to salary packaging is $51,007 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.

 

 

 

Example 12: Superannuation and a Laptop

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

	Non-Packaged	Packaged
Total Package	55,000.00	55,000.00
Superannuation		5,200.00
Benefits Packaged
Laptop		2,000.00
Fringe Benefits Tax		0.00
Pre-tax Salary	55,000.00	47,800.00
Tax & Medicare	12,675.00	10,407.00
Superannuation	5,200.00
Laptop	2,200.00
Net Income	34,925.00	37,393.00
Packaging Benefit - excluding extra super tax		2,468.00
Packaging Benefit - including extra super tax		1,688.00
Reportable Fringe Benefits		0.00
After tax benefit from salary packaging is $2,468.00 p.a.
The Equivalent Salary* due to salary packaging is $57,172 p.a.

* Equivalent Salary is the gross amount an employee would need to earn from a non-packaging employer to achieve the same net income.

Comments

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.