EMPLOYEE BENEFITS
Salary Packaging & Advisory
2
Salary packaging
Employee benefits
SALARY PACKAGING
THIS HANDBOOK PROVIDES COMPREHENSIVE
INFORMATION TO EMPLOYEES INTERESTED IN THE
SALARY PACKAGING OPTIONS OFFERED BY YOUR
ORGANISATION. THE OFFERS IN THIS HANDBOOK
ARE AVAILABLE TO ALL EMPLOYEES.
BDO provides technical advice on a wide range of salary packaging
benefits that match both your organisation’s tax status and objectives
and you, the employee’s, best interests.
DEFINITION
Our advisers have the technical expertise to set up your remuneration
package structure, part of which includes discussion around the basic
elements of salary packaging, providing a full explanation of the available
benefits, package strategies, as well as providing examples.
Salary packaging is a remuneration structure that allows your employer to
provide you with tax exempt or concessionally taxed benefits other than a cash
salary. In this context, a benefit is defined as the payment or provision of goods
or services by an employer on behalf of its employee.
While there are numerous elements that can be included within your
salary package, by far the most popular benefits are associated with this
form of tax minimisation are vehicle leases and superannuation.
We ensure these benefits are regularly reviewed and benchmarked
against ‘best practices’. And in the event of any taxation changes, or to
guarantee efficient management, your organisation reserves the right to
make appropriate modifications.
You may structure your package, given the information and parameters
set in this handbook, along with the support of your BDO adviser.
If you decide that you would like to take advantage of the salary
packaging options available to you through your organisation, BDO’s
salary packaging management team will step you through your options
and the best way to apply them to your individual situation.
What is salary packaging?
The ATO recognises salary packaging as a legitimate form of taxation planning.
Salary packaging allows you to receive non-cash payments as part of your
remuneration in the form of fringe benefits over the top of the cash salary.
The main purpose of this type of compensation scheme is for an individual to
get the most out of the net remuneration (after tax income). In deciding to get
paid with benefits in place of monetary income, employees can defer standard
taxation rates by opting for fringe benefits.
Salary packaging offers you the opportunity to achieve tax benefit advantage
by reducing the tax payable on your salary thus maximising after tax income.
A broad range of employee benefit options that best suits their own situation.
4
Salary packaging
Employee benefits
OUR APPROACH
A successful salary packaging
arrangement is the result of a
comprehensive assessment of your
financial needs and you will have the
opportunity to thoroughly discuss
your salary packaging requirements
and seek the technical advice of your
BDO advisers.
How does it work?
BDO will manage the salary packaging process and supervise payment
for your organisation. There are a number of forms that you will need
to complete to take up your organisation’s offer of salary packaging.
Completed forms are sent to your payroll department following which
your new remuneration structure will be determined.
Once your package has been implemented, BDO will provide you with
the support you require in all matters concerning your salary package.
Who pays me?
Payroll functions in relation to your salary packaging (including the
particular benefit, lease payment and allowances) will be managed and
paid via BDO. However, the payment of your net pay and superannuation
will remain with your organisation’s payroll department.
A successful salary packaging arrangement is the result of a
comprehensive assessment of your financial needs and you will have the
opportunity to thoroughly discuss your salary packaging requirements
and seek the technical advice of your BDO advisers.
Providing information to BDO
You will be able to provide and access the following information via our
online services:
• Transaction statements
• Application forms
• Maintain motor vehicle logbooks
• Record vehicle odometer readings.
Employee benefits
Salary packaging
THE PROCESS
1
2
Attend a group presentation detailing
the various benefits available
Engage in an individual consultation
discussing expected outcomes
3
4
Complete the application requirements
Receive a disclosure report on the
completed salary package
5
6
Salary packaging
Employee benefits
BENEFITS
1. NOVATED MOTOR VEHICLE LEASES (ATO REFERENCE: IT2509)
A novated lease is a tri-partied financial arrangement between the
employee (as the lessee), financier (as the lessor) and the employer.
The following diagram outlines the process associated with including a
novated lease as part of your salary package:
EMPLOYEE (Lessee)
Lease agreement
EMPLOYER
Lease payments from pre and post
tax salary
LEASE COMPANY (Lessor)
Figure 1: Novated motor vehicle lease
Fully maintained leases
Besides the financial component on the lease, employees can have the
opportunity to benefit from a fully maintained lease where the monthly
lease payment also covers all running costs of the vehicle, including:
• Fuel (petrol card)
• Registration
• Insurance
• Maintenance
• Roadside assistance.
Advantages of a fully maintained lease include:
• Normally non-deductible motor vehicle operating costs become a
pre-tax deduction
• Allocating a fixed monthly payment for motor vehicle expenses that
protects the cash flow of the employee
• Eliminating out-of-pocket expenses of operating the vehicle for the
term of the lease.
Novated finance lease (residual payment required)
Once the lease contract is terminated, the employee (lessee) will be
required to pay the calculated residual cost as a percentage of the original
FBT value of the vehicle in order to acquire ownership.
The employee may have the option to review the lease on the vehicle for
another fixed term in order to reduce the residual cost of the vehicle.
Employee benefits
Salary packaging
There are a number of items that can be included within your salary package:
novated leases; associate leases; costs associated with living and working away
from home; working in remote areas; working overseas; and superannuation just to name a few.
Initial enquiry with
BDO adviser
BDO provides
details to
Fleet Manager
Fleet Manager
contacts you to
discuss vehicle
Sign-off quote
and return to
Fleet Manager
BDO enters quote
details into your
salary package
Quote from
Fleet Manager
DEFINITION
What is a novated lease?
In a novated lease agreement, the fleet manager leases a vehicle to the
employee and novates the responsibility to pay for the lease to the employer.
During the lease term, the employee will have full and unrestricted use of the
vehicle. In the event of an employee termination of (resignation, redundancy
or other termination), the novation agreement expires and full accountability
reverts to the employee. The vehicle remains the responsibility of the
employee.
The transfer of arrangements from one employer to another is a simple
transaction for the employer and employee.
Relationship management
Complete credit
application form for
Fleet Manager
Vehicle order
completed by
Fleet Manager
BDO application
forms completed
Vehicle delivered
BDO process
payroll and lease
payments
Figure 2: Novated lease process
• An employee’s requirements will be discussed with the fleet manager to
ensure the right vehicle is quoted and the price is sourced
• The fleet manager can source the vehicle and accommodate any existing
relationships employees may have with vehicle dealerships
• We can offer a finance lease or an operating lease option for new and some
used vehicles
• After the package is accepted, the vehicle will be delivered to an agreed
location
• All other inclusions to the package will be based on the
nominated kilometres
• Reports showing utilisation of the budget and fringe benefits will be
available on a regular basis
• The package can be changed anytime within the lease to ensure that it
meets the vehicle operating costs
• Three months before the lease ends the driver will be advised to ensure
smooth changeover of the vehicle.
7
8
Salary packaging
Employee benefits
2. ASSOCIATE MOTOR VEHICLE LEASES (ATO REFERENCE: IT2509)
For tax purposes, an associate lease is structured a very similar way as a
novated lease, except an associate of the employee (eg spouse, family
member) acts as the lessor.
The associate lease agreement requires an employee to nominate the
associate, which can be any of the following: spouse, de facto, family
member (over 18 years old), family company/trust.
Lease agreement
ASSOCIATE
Lease payments
from pre and post
tax salary
EMPLOYEE
Company provides
motor vehicle
Figure 3: Associated motor vehicle lease
The car of the associate will be leased to the employer and made
available to its employee as a car fringe benefit. The use of the car by
either the employee or their associate is assumed to be for private use.
EMPLOYER
Any income gained by the associate from the lease payments as part
of the associate lease agreement is taxable and must be declared in the
associate’s income tax return. However, by deducting all operating cost
related to the use of the vehicle, the associate may be able to offset
any income earned. Lease payments are determined independent of the
relationship of the employee and the associate. The payments will be
paid from the employee’s salary package.
How an associate lease works
The associate provides the following costs:
• Finance/loan costs
• Registration and insurance costs
• Roadside assistance/motor vehicle club membership costs
• Maintenance and service costs.
An estimate of the number of kilometres (per year) is also required as it
will be used to calculate the FBT rate and projected annual fuel cost.
The associate must register for an Australian Business Number (ABN).
BDO can facilitate this application process or the associate may directly
apply online (www.abr.gov.au).
The associate must also supply their full name, date of birth and tax
file number.
Deductions
Records of all expenses relating to the operation of the vehicle must be
kept including: fuel, depreciation, roadside assistance, maintenance/
servicing, registration and insurance. Documentation including tax
receipts to support the claim must be kept.
Employee benefits
3. REMOTE AREA ALLOWANCES
(ATO REFERENCE: SECTION 59, 60, 61 FBTAA (1986))
Tax concessions of about 50 per cent of household expenses and travels
of employees living and working in remote Australia are allowed under
The Fringe Benefits Tax Assessment Act 1986. Such expenses include:
• Rental payments - 50 per cent of an employee’s rental can be
reimbursed free of tax. A copy of the rental agreement or a letter from
the landlord/real estate agent stating the amount of rent payable is
required for reimbursement
• Mortgage interest - 50 per cent of mortgage interest for a house
owned in a designated remote area can be reimbursed free of tax
(this can only be paid after interest charges have been incurred). Bank
statements showing the amount of interest paid over a given period
is required
• Household fuel - gas and electricity expenses in a remote area
dwelling may be eligible for a 50 per cent tax concession. Invoices
must be paid first prior to reimbursement and copies of the relevant
invoices are required
• Travel expenses - airline or road travel related expenses to and from a
remote area and the capital city of the state is allowed for 50 per cent
reimbursement. This benefit is available to the employee and their
family members. Travel time must not be less than three days and
should not be considered as annual leave. Travel declaration, airline
ticket invoice and/or fuel receipts and meal expenses are required.
DEFINITION
Remote areas
An employee is considered to be living in a remote area when their
place of residence is located at least 40 kilometres from a town with
a census population (1981 census) between 14,000 and 130,000 or at
least 100 kilometres from a town with a census population of more
than 130,00 or more. This calculation is subject to change by the ATO.
Salary packaging
9
4. LIVING AWAY FROM HOME
ALLOWANCES (ATO REFERENCE: MT2040 PART
III, DIV 7 FBTAA)
An employee will be eligible to receive a tax-free Living Away From Home
Allowance (LAFHA) where their work requires them to transfer and live
away from their permanent place of residence. LAFHA can be paid as a
benefit for up to a period of 12 months.
There are two components to LAFHA:
1. Rent - an employee’s rent expenses at the new location can be
reimbursed from their pre-tax salary. A copy of the rental agreement
is necessary
2. Food - an allowance for food is available, which is set by the ATO
each April. The number of family members (adults and children under
12 years) will be included in the allowance calculation.
5. OFFSHORE EMPLOYEES
A number of benefits are available to employees who are posted overseas
(either Australia to a foreign country or from a foreign country to
Australia). These benefits only apply to persons under PAYG withholding
(ie the employee must be taxed as an Australian resident or income is
paid from Australia even whilst working offshore).
Some of the key benefits include the following items being paid for in
pre-tax dollars:
• Education of dependents while living offshore
• Language lessons associated with living in a country with a language
different to your native tongue
• Relocation costs associated with the move offshore
• Travel between your country of origin and your new offshore post.
10
Salary packaging
Employee benefits
6. TOOLS OF TRADE
9. SUPERANNUATION
If an employer has advised an employee they require a set of tools,
apparatus and specialised equipment for their position, then such items
can be claimed as a tax deduction.
Employees are able to make additional superannuation contributions
from their pre-tax salary. The maximum allowable amounts depend on
your age and will be indexed each year. Superannuation contributions
will remain as a payroll deduction. BDO can provide employees
with a package modelling scenario to highlight the impact of any
superannuation contribution.
Alternatively reimbursement can be obtained from the employee’s salary
package as an expense to be reimbursed from their pre-tax salary under
the ‘otherwise deductible’ rule.
7. INCOME PROTECTION
Income protection insurance premiums can be included as a FBT
exemption under the ‘otherwise deductible’ rule.
8. MEMBERSHIPS
All professional memberships such as CPA, AIM, AICD, trade unions and
airline clubs are exempt from FBT and are considered an allowable benefit
to employees.
Note: Our salary packaging team do not provide investment advice in
relation to the structure of an employee’s superannuation fund. Please ask
your adviser to refer you to our superannuation team.
10. SELF-EDUCATION EXPENSES
An employee’s work-related education expenses can be included in a
salary package. This is deducted from their pre-tax salary. Approval from
the employer is required.
11. INVESTMENT LOANS AND
PROPERTY MAINTENANCE COSTS
Interest payments on property or share investment loans can be included
as part of a salary packaging arrangement and is deductible from an
employee’s pre-tax salary.
Employee benefits
Salary packaging
11
FAQ’S
1. Why has my employer introduced remuneration packaging?
Remuneration packaging will benefit everyone involved and it is
considered to be best practice in the field of employee remuneration.
9. Will an eligible employee have less coverage under Workcover if
he/she takes the option of remuneration packaging?
No.
For Existing Employees:
• An increase in after-tax remuneration
• Flexibility to package his/her remuneration to best meet his/her
individual and family needs
• Improves cash flow for the household.
10.What happens to salary and expense benefit payments when an
eligible employee takes holiday?
Expense payments will continue to be paid by your employer so long
as the employee is still drawing a salary or wage.
For New Employees:
• Your employer will be a more attractive employment option.
• The ability to increase employee’s after tax income without
increasing payroll costs.
• Meet individual preferences and needs of employees in their
financial arrangements.
• Enhance their attractiveness as an employer.
• Utilise Government policy, intended benefits and exemptions.
2. Who is eligible?
Salary packaging is open to all permanent and permanent part-time
employees. It is not open to casual or externally contracted employees.
3. Is remuneration packaging compulsory?
No. Remuneration packaging is entirely at the discretion of the
eligible employee.
4. Do employers and employees in the general community in the
public and private sectors utilise remuneration packaging?
Yes. An ever increasing number of employers in both sectors utilise
packaging to remunerate employees.
5. What is the view of the Australian Taxation Office on
remuneration packaging?
The Australian Taxation Office recognises remuneration packaging
as a legitimate tax planning measure (Fringe Benefit Tax Assessment
Act 1986).
6. May an eligible employee change the election of benefit
payments within his/her packaging regime?
Yes. Benefits to be paid by the employer from the employee’s
Expense Benefit Payment Account may be changed by the employee
as often as required. Such changes will be noted on a payment advice,
completed by the employee.
7. Will remuneration packaging have a negative impact on:
• Superannuation payment and benefits?
• Annual leave payments and accruals?
• Sick lease payments?
• Long service leave payments?
The base salary received before packaging continues to be used for the
calculation of compulsory superannuation contributions and benefits
and for the calculation of entitlements on ceasing employment with
your employer.
8. Will salary packaging affect and Family Tax Benefit that I
currently receive?
No. There maybe even be circumstances where these payments
may increase as a result of packaging. We suggest that you consult
the Family Tax Benefit website at www.humanservices.gov.au/
customer/dhs/centrelink.
11. What happens when an eligible employee takes leave without
pay? The employee will have to make the necessary private
arrangements for payment of expenses during this period.
12. What happens when eligible employees cease employment with
an employer?
On ceasing employment, employees who have a credit in the Expense
Payment Benefit Account may either:
• Use the existing credit to pay for an expense already incurred, up to
the balance remaining in their Expense Payment Benefit Account; or
• Receive the balance of the credit in that Account in cash, in which
case the funds will be treated as salary or wages and will be subject to
PAYG taxation.
13.Will your employer offer assistance to eligible employees to
determine their initial packaging regime?
Yes. Your employer has engaged remuneration specialist BDO
to ensure all packaging regimes meet statutory and taxation
requirements.
14.Can I accrue funds in my Expense Payment Benefit Account?
Yes, however surplus funds must be cleared by the end of the Fringe
Benefit Tax year, ie 31 March each year. If funds are not cleared, they
will be paid out as salary and taxed accordingly.
15. How are HECS fees calculated for a packaged employee?
All expense benefits paid as part of a remuneration package between
1 April and 31 March will be gross up and include on PAYG summaries
for that financial year. To this effect, all expense benefits paid will
be grossed-up and include with the gross salary for purposes of
determining the amount of HECS payable. Please note that as
taxable income is reduced throughout the year, a voluntary deduction
may be required.
16.Am I liable for tax on the remuneration packaging if I take the
option to package?
Yes. Any income tax or fringe benefit tax applicable now or in the
future will form part of your total remuneration.
17. If I utilise a car as a benefit, will I have ownership of
the car?
Yes, where either the Novated or Associate Lease methods are used.
18. What details will I have to provide?
All the information that we require is requested on information
sheets that will be given to all eligible employees prior to his or her
appointment with a remuneration consultant. Our ability to provide
you with the best quality advice depends on the quality of information
that is provided to us.
19.Is remuneration packaging confidential?
Yes, like all personal details, package details will remain confidential.
The agreement you sign is between yourself and BDO. Legally, we are
not able to share your package or other information with anyone else.
1300 138 991
www.bdo.com.au
Distinctively different – it’s how we see you
AUDIT • TAX • ADVISORY
NEW SOUTH WALES
NORTHERN TERRITORY
QUEENSLAND
SOUTH AUSTRALIA
TASMANIA
VICTORIA
TIM VLUG
Executive Director
Tel: +61 7 3237 5800
[email protected]
TERRIE WENDLAND
Bureau Manager
Tel: +61 7 3237 5799
[email protected]
WESTERN AUSTRALIA
LAUREN JONES
Salary Packaging Officer
[email protected]
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover
specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO
member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners
and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the
information in this publication or for any decision based on it.
BDO (QLD) Pty Ltd ABN 45 134 242 434 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an
Australian company limited by guarantee. BDO (QLD Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part
of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or
omissions of financial services licensees.
BDO is the brand name for the BDO network and for each of the BDO member firms.
© 2014BDO (QLD) Pty Ltd. All rights reserved.