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Salary Packaging - November 2008


Salary Packaging - November 2008

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									                                                                                                         November 2008

                                            Salary Packaging
This document is issued for general guidance only. It does not constitute professional advice. The issues with which it deals are complex and the document
necessarily deals only with general principles. No reader should rely on this document for the purpose of making a decision as to action but should seek the
appropriate advice from the Union on the particular circumstances of that reader. The Union accepts no responsibility for the consequences should any person
act in reliance on this document without obtaining the appropriate advice from the Union.

What is Salary Packaging?
                                                                                    Based on the concerns raised by members, the
Salary packaging is a tax effective way to receive                                  QTU sought formal advice on this issue. A copy of
salary as a combination of income and benefits.                                     the advice provided by accounting firm Ernst and
                                                                                    Young is set out below:
Salary packaging allows members to deduct some
of their pre-tax income and to use it to pay for                                    Salary Packaging
benefits. By reducing pre-tax income, members                                       The purpose of this advice is to explain why
can reduce the amount of income tax they pay                                        Queensland Teachers Union of Employees (“QTU”)
and increase the amount they take home each                                         cannot negotiate the same salary packaging
pay period.                                                                         arrangements for teachers that the likes of
                                                                                    Queensland Health and other non-profit
Because of the differences between the income                                       organisations can provide to their employees.
tax and fringe benefit tax (FBT) laws, it may be
more tax effective for a member to receive a non-                                   Background
cash benefit directly from their employer (or have                                  The government affords concessional Fringe
the employer reimburse the cost of the item),                                       Benefits Tax (“FBT”) treatment for certain public
rather than to receive additional cash salary and                                   benevolent institutions (“PBI”), and other non-
then purchase that non-cash item themselves.                                        profit organisations.    The concessions were
That is, in some cases the FBT is less than the                                     introduced to enable these types of organisations
income tax payable on the salary required to pay                                    to attract quality personnel by providing salary
for that benefit.                                                                   packaging benefits, whilst incurring less costs to
                                                                                    the employer (who traditionally could not compete
As each person's circumstances are different,                                       with packages offered by private enterprise).
members need to determine if salary packaging
will be of benefit.                                                                 There are two classes of relevant employers that
                                                                                    are afforded concessional treatment, namely:
Due to recent changes to the personal income tax                                    1. Employers that are either a PBI or a private
rates, salary packaging of certain benefits may                                          non-profit hospital. These are exempt from
not be as beneficial to some members as it was                                           paying FBT up to a capping threshold; and
previously. The benefit to members will depend on                                   2. Certain        non-government,        non-profit
the types of benefit packaged (i.e. whether the                                          organisations. These are eligible for a rebate
benefit is subject to FBT or eligible for FBT                                            of 48% of the amount of FBT that would
concessions/exemptions) and the salary level of                                          otherwise be payable, so they are not
the member (and their relevant tax rate).                                                disadvantaged because they cannot claim a
What can be included in a Salary                                                         tax deduction for the FBT paid.
Package?                                                                            Public and Private Non-profit Hospitals
A schedule of benefits available for salary                                         Where the employer is a public hospital that is a
packaging is printed on the last page of this                                       PBI, or a private non-profit hospital, they are able
document.                                                                           to provide fringe benefits without paying FBT, up
                                                                                    to a capping threshold of $17,000 per employee
Why is this all that can be included?                                               of the grossed-up taxable value of the fringe
The QTU frequently receives enquiries from                                          benefits provided.
members about salary packaging arrangements
which apply in other government departments.

              Authorised by John Battams, General Secretary, Qld Teachers' Union, P O Box 1750, Milton BC Qld 4064
                     Web: Email: Phone: 07 3512 9000 Fax: 07 3512 9050
Salary Packaging – November 2008                                                                             Page 2 of 4

As a further concession, benefits such as meal                  Accordingly, a school is clearly not a PBI. On this
entertainment, car parking and entertainment                    basis, fringe benefits ‘salary packaged’ by
leasing facility benefits are ignored for the                   teachers will not qualify as ‘exempt benefits’
purposes of calculating the $17,000 limit.                      under sec 57A(1) of the FBTAA.
PBI Other Than a Hospital                                       Rebateable Employers
Where the employer is a PBI that is not a hospital              Rebateable employers are generally certain non-
(eg. a charity), the FBT exemption limit is                     profit organisations which are eligible for a rebate
increased to $30,000 for each employee’s                        of 48% of the amount of FBT that would otherwise
grossed-up taxable value of benefits.                           be payable.

Again, further concessions are afforded so that                 Pursuant to Section 65J(1) of the FBTAA the
benefits such as meal entertainment; car parking                definition of ‘rebateable employer’ includes
and entertainment leasing facility benefits are                 (among others):
ignored for the purposes of the $30,000 limit.                  • religious institutions;
Other Non-profit Organisations
                                                                • a scientific, charitable or public educational
Many non-profit organisations (e.g. employer                      institution (other than an institution of the
associations, scientific institutions etc) that are               Commonwealth, State or a Territory);
not PBIs also receive concessional FBT treatment.
These organisations are generally referred to as                • a school (including a pre-school but not
‘rebateable employers’ and are eligible for a 48%                 including a tertiary institution) that:
rebate on benefits up to $30,000 per employee of
the FBT that would otherwise have been payable.                     (i)   although established by or under a law of
                                                                          the Commonwealth, a State or a Territory,
Meal     entertainment,  car     parking    and                           is not conducted for or on behalf of the
entertainment leasing facility benefits are not                           Commonwealth, a State or a Territory; and
included for the purposes of calculating the
$30,000 threshold.                                                  (ii) is not conducted for the purpose of profit
                                                                          or gain to the persons or body of persons
                                                                          conducting it;
Specifically, this advice addresses the following:                  (iii) many non-profit societies, associations,
                                                                          and clubs.       However, Section 65J(5)
• why a public school is not a “public benevolent                         excludes any of these organisations that
  institution” within the meaning of Section                              are effectively Government owned.
  57A(1) of the Fringe Benefits Tax Assessment
  Act 1986 (“FBTAA”); and                                       Accordingly, as schools represented by QTU are
                                                                owned and conducted by the State Government
• why a public school is not a ‘rebateable                      they clearly do not fit within the definition of
  employer’ under Section 65J of the FBTAA.                     rebateable employer.
Technical Analysis                                              Given that a school is clearly not a PBI, teachers
Exempt Fringe Benefits                                          are not able to take advantage of the tax free FBT
                                                                thresholds offered by these organisations.
Pursuant to Section 57A(1) of the FBTAA, where                  Further, as Government owned/conducted
an employer is a PBI, a benefit provided in respect             organisations do not generally qualify as
of the employment of the employee is an ‘exempt                 rebateable employers for FBT purposes, the FBT
benefit’ up to the capped amount.                               rebate is also not available for benefits provided
                                                                to teachers of State Government schools.
Generally, a ‘benevolent institution’ is a non-profit           Desley Grundy
organisation with the predominant purpose of                    Partner - Taxation
providing direct relief for persons experiencing
poverty, sickness, suffering, distress, misfortune,             What amount can I package?
disability, destitution or helplessness as would
arouse compassion or pity in the community.                     One element of the ‘Whole of Government’ Wages
Relief may be provided through the organisation’s               Agreement negotiated by public sector unions in
employees, volunteers or through its agents. For                late 2005 was the removal of the 50% cap on
an entity to be a PBI, it must generally provide                salary packaging for superannuation purposes.
relief to needy members of the community at                     Clause 15.4 of the Department of Education,
large.                                                          Training and the Arts Teachers’ Certified
          Authorised by John Battams, General Secretary, Qld Teachers' Union, P O Box 1750, Milton BC Qld 4064
                 Web: Email: Phone: 07 3512 9000 Fax: 07 3512 9050
Salary Packaging – November 2008                                                                            Page 3 of 4

Agreement 2006 provides for this change and, as                Toll-free Inquiry:     1300 304 010
a consequence, all employees may now access                    Fax Inquiry:           1300 301 866
salary packaging for superannuation up to the full             Email:       
amount of their fortnightly income.                            Website:     

Salary packaging for other non-cash benefits, for              At the website click on ‘Application Form and
example, a motor vehicle or laptop computer                    Information Booklet Download’. To log on, click
remains subject to a limit of 50% of the                       on ‘Username’ and enter ‘education’ and then
employee’s total remuneration.                                 click on ‘Password’ and enter ‘remuneration’.

Example: Jenny Bloggs is a senior teacher who                  This same information is available from the
packages a motor vehicle, a laptop computer and                Department’s Human Resources intranet site
superannuation. Jenny’s remuneration packaging                 under ‘Resource Services’.
involves a motor vehicle and laptop with a total
value of 30% of her current remuneration.                      All employees who wish to access salary
Additionally, Jenny packages all her remaining                 packaging must first obtain independent financial
remuneration, 70% into superannuation.                         advice from a member of the panel of approved
                                                               financial advisers supplied by the management
What does it cost to salary package?                           firm. This requirement is strictly enforced for legal
The process of salary packaging is managed for                 liability reasons.
the Department by a private firm (REMSERV). The                Union Assistance
cost of this service is met by the employee and is             Salary packaging arrangements are a private
usually in the form of a flat annual fee.                      contractual agreement between individual
                                                               employees and REMSERV, the government
Any and all expenses arising from the salary                   provider of salary packaging services.
package, including changes in taxation liabilities,
are the responsibility of the employee. In essence             Please note that the QTU is unable to provide
the salary packaging process is at no cost to the              advice that might constitute financial advice and
Department.                                                    members will be required to contact their
                                                               personal financial adviser for questions relating to
The fees set by REMSERV for managing salary                    their personal financial situation.
packaging are currently:
                                                               QTU members are encouraged to take the
1.   Full packaging of a novated lease and/or                  following actions before contacting the QTU for
     more than one item which requires financial               assistance or advice on the issue of salary
     advice: $229.50 per year payable as $8.83                 packaging:
     per fortnight.
2.   Full packaging of one item which requires                 • access the available documents from the
     financial advice plus superannuation,                       REMSERV website;
     (excludes novated leases): $215.50 per year
     payable as $8.29 per fortnight.                           • contact REMSERV to discuss requests for
3.   Packaging fringe benefit tax (FBT) exempt                   information or to raise issues of concern about
     items which include superannuation: $65.00                  an existing salary packaging arrangement; and
     per year payable in your first deduction
     amount(s) or as $2.50 per fortnight.
4.   Packaging FBT exempt only items excluding                 • if necessary, contact the relevant Education
     superannuation: $55.00 per year payable in                  Department pay office in relation to issues
     your first deduction amount(s) or as $2.12                  arising from the deductions from salary related
     per fortnight.                                              to salary packaging.
5.   Packaging superannuation only, (where no
     other benefits are packaged): $35.00 per                  If the problem is unable to be resolved with
     year payable as $1.35 per fortnight.                      REMSERV or the Department, members should
                                                               initiate Union assistance via the Request for
                                                               Information / Request for Advice pro-formas on
What will I need to do to take up salary                       the QTU website at or by
packaging?                                                     contacting the Union directly.
Information and documentation regarding
accessing salary packaging can be obtained by
contacting REMSERV through the following
         Authorised by John Battams, General Secretary, Qld Teachers' Union, P O Box 1750, Milton BC Qld 4064
                Web: Email: Phone: 07 3512 9000 Fax: 07 3512 9050
Salary Packaging – November 2008                                                                             Page 4 of 4

The following benefits are available for salary packaging:

                                                                   Other Tax                            Reportable
            Benefit Item                     FBT Status                               GST Status
                                                               Deductible Item                         Fringe Benefit
Aged and Disabled Care Payments            Full                No                   No                Yes
Airport Lounge Membership                  Exempt              Yes                  Yes               No
Car Parking                                Full                No                   Yes               No
Child Care Fees (non-employer
                                           Full                No                   No                Yes
Club/Association Membership
                                           Full                No                   Yes               Yes
Subscription (non-work related)
Computer software (non-work
                                           Full                No                   Yes               Yes
Desktop Computers (non-work
                                           Full                No                   Yes               Yes
Disability/Income Protection               Exempt              Yes                  Yes               No
Financial Adviser Fees                     Exempt/Full         Yes/No               Yes               Yes/No
HECS/HELP                                  Full                No                   No                Yes
Home Mortgage                              Full                No                   No                Yes
Home Office Expenses                       Exempt              Yes                  Yes               No
House/Contents Insurance                   Full                No                   Yes               Yes
In-house benefits (electricity and/or
                                           Exempt              No                   Yes               No
public transport)
Insurance Premiums (other than
                                           Full                No                   No                Yes
income protection insurance)
Motor Vehicle Novated Lease                Concessional        No                   Yes               Yes
Motor Vehicle Operating Expenses
                                           Full                No                   Yes               Yes
(Non-Novated Vehicles)
Personal Loan Repayments
                                           Full                No                   No                Yes
(excluding Investment Loans)
Private Insurance                          Full                No                   No                Yes
Portable Electronic Devices                Full/Exempt         Yes/No               Yes               Yes/No
Private Rental Payment                     Full                No                   No                Yes
Private School Fees                        Full                No                   No                Yes
Private Travel                             Full                No                   Yes               Yes
Professional Memberships/
                                           Exempt              Yes                  Yes               No
Public Transport                           Full                No                   Yes               Yes
Savings/Investment Schemes                 Full                No                   No                Yes
Self-Education Expenses                    Exempt              Yes                  Yes/No            No
Superannuation                             Exempt              No                   No                No
Utilities                                  Full                No                   Yes/No            Yes
Work Related Travel Expenses
                                           Exempt              Yes                  Yes/No            No
(including Compassionate Travel)
Work Uniforms (ATO Conditions              Exempt              Yes                  Yes               No

Please note that salary packaging some of these benefits may not be beneficial to members because the
member has to pay the full Fringe Benefits Tax liability. A financial planner will be able to provide more
advice on this matter.

          Authorised by John Battams, General Secretary, Qld Teachers' Union, P O Box 1750, Milton BC Qld 4064
                 Web: Email: Phone: 07 3512 9000 Fax: 07 3512 9050

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