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FocusOn - Salary Packaging for Public Benevolent Institutions

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beachA Public Benevolent Institution (PBI) can provide fringe benefits to its employees free of FBT up to a certain limit.

Before reading this FocusOn we recommend that your familiarise yourself with the general information on salary packaging explained in our FocusOn An Introduction to Salary Packaging.

What is a Public Benevolent Institution (PBI)

Briefly, a PBI is a non-profit organisation established and operates to provide benevolent relief directly to those in need.  For more information of what is a PBI and how to become one, please refer to our FocusOn Public Benevolent Institutions (PBIs).

FBT Exemption Threshold

A PBI can provide fringe benefits to its employees free of FBT if the grossed-up taxable value of fringe benefits does not exceed $30,000 per employee.

The grossed-up taxable value of benefits provided in excess of this capping threshold will be subject to FBT at 46.5%. Accordingly, most PBIs ensure that they only provide benefits that utilise this threshold.

The threshold generally applies to all benefits that would normally have a taxable value. Benefits that do not have a taxable value due to their nature (rather than the status of the employer) do not affect the threshold. An example of this is an exempt benefit, such as minor benefit.

To establish the actual amount of fringe benefits can be provided without attracting FBT at 46.5%, the threshold of $30,000 should be divided by the relevant gross-up factor. This gives rise to the following non-grossed-up fringe benefits:

Benefit Gross-up factor Amount
Type 1 2.0647

$14,530

**

Type 2 1.8692 $16,050

** Including GST of $1,321

Who Should Salary Package

Where the grossed-up taxable value of benefits per employee does not exceed $30,000, the benefits provided by a PBI do not attract any FBT. This means that a benefit could be provided to any employee up to the capped amount and still be more tax effective than if it was provided as salary.

Types of Fringe Benefits Provided

The range of fringe benefits eligible to be provided can be categorised as exempt fringe benefits, concessionally valued fringe benefits and ordinary fringe benefits.

The ability to provide FBT-free fringe benefits should not affect whether an exempt benefit or a concessionally valued fringe benefit is provided. These benefits will continue to be tax-effective because of their nature, not the status of an employer. However, being able to provide FBT-free benefits will affect the tax-effectiveness of an ordinary fringe benefit. Although there is no concessional valuation in relation to the cost of an ordinary fringe benefit, substantial tax savings can be achieved due the this remuneration effectively being tax free.

Even then, consideration of benefit provided is required to ensure that packaging does not become administratively onerous. Appropriate ordinary benefits for packaging are those that are GST-free or can be set up as a regular payment without the need for monitoring.

Such benefits include mortgage payments, payments towards an employee's credit card and health insurance premiums. For example, assume that an employee wants to receive mortgage payments instead of salary up to the pre-grossed-up capping limit of $16,050. The employee would then arrange for their employer to make monthly payments of $1,337.50 as a fringe benefit.

For benefits with GST, we recommend the use of an employer credit card rather than an employee's credit card.

Meal entertainment

Substantial benefits can be achieved by an employee of a PBI packaging meal entertainment. As a general rule, a meal entertainment fringe benefit attracts adverse tax consequences. It will either attract FBT or be non-deductible for income tax purposes (if provided by a tax paying employer). Determining the taxable value of meal entertainment fringe benefits can also be complicated.

However, meal entertainment provided by a PBI is not subject to FBT. Further, it will not affect an employee's capping threshold and is not required to be grossed-up and disclosed on the recipient's payment summary. Meal entertainment for FBT purposes generally represents food and drink costs. It can also include what is known as "entertainment facility leasing expenses", such as the hire and exclusive use of a function centre. With careful planning, this can extend the tax-effective salary packaging from a business lunch to a wedding reception.

Disclosing FBT free Fringe Benefits

When the actual amount of fringe benefits provided to an employee exceeds $2,000 (since 1 April 2007), the grossed-up taxable value of benefits will need to be shown on the employee's PAYG Payment Summary. This requirement also applies to the benefits provided by PBIs, even though they have not been subject to FBT. Only benefits that are tax exempt because of their nature do not need to be disclosed.

The amount shown on the PAYG Payment Summary must be disclosed in the employee's income tax return. This amount is not subject to income tax. However from 1 July 2009 onwards, this amount is added to an employee's taxable income to determine his or her eligibility to certain tax offsets and deductions, government benefits payments and certain tax liabilities.

What now

It is very tax effective for employees of PBI to salary package. In fact, with careful planning it is possible to provide benefits in excess of the FBT exemption threshold without attracting FBT. Please do not hesitate to contact us if you wish to discuss salary packaging issues further.

Published : April 2011

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