Salary packaging is a great way to reduce your taxable income and can be a fantastic way to put more money in your pocket with each pay. There may however be some circumstances where you will need to report a higher income to the government.
If you have a HECS/HELP debt, pay child support, receive health insurance rebates or receive Centrelink benefits then read on…
At the end of each financial year, the payment summary you receive from your employer will show your total earnings which may include salary and reportable fringe benefits. It is important that you report the reportable fringe benefits to the relevant Government agencies (Centrelink, Child Support, HECS/HELP, etc.).
The reportable fringe benefits differ from your regular salary in that they are the “grossed up” amount of what you have salary packaged. The “grossed up” amount is the amount salary packaged, multiplied by 1.8868 (gross-up factor).
What this means is that if you salary package $15,900 for the year, your grossed up amount will be $30,000 ($15,900 x 1.8868).
This is the explanation from the ATO website (see page reference: Reportable fringe benefits – facts for employees):
“Your employer calculates your reportable fringe benefits amount by multiplying the taxable value of the fringe benefits provided to you or your associate by the lower gross-up rate. The lower gross up rate for the FBT years ending 31 March 2021 and 2017 is 1.9608. For example, if the taxable value of your fringe benefits is $2,000.01, your reportable fringe benefit amount is $3,921.
The reportable fringe benefit amount reflects the gross salary that you would have to earn to purchase the benefit from your after tax income.”
Note: the gross up rate for the current FBT year ending March 2018 is: 1.8868.
David’s salary is $50,000 per year and he salary packages $15,900 of this towards his home loan.
He is only taxed on his remaining salary which is $34,100, meaning he saves around $5,093 per year in tax.
For reporting purposes, his reportable salary becomes $64,100 ($34,100 taxable income + $30,000 reportable fringe benefits) and this is the salary which is assessed by the relevant Government agency.
Centrelink payments including Family Tax Benefits will not be affected by salary packaging, although you still need to let Centrelink know your income and salary packaging amounts.
In order for Centrelink to correctly assess the salary packaging amount, you must report the salary packaging amount (or reportable fringe benefits) as Exempt Reportable Frings Benefits. Centrelink will then adjust this figure down to the “cash” value in their assessible income calculations, i.e. divide the value by 1.8868.
SalaryPackagingPLUS can assist you with this information if required.
Have a look at our salary packaging calculators to see how salary packaging may impact you.
If you have a HECS/HELP debt, tick the HECS/HELP box and we’ll be able to tell you how much extra you need to set aside to cover your debt. The good news is that you’ll be putting the extra contributions into paying off your tuition faster, rather than giving it away to the tax man.
For all other benefits, speak with the relevant agency. Just keep in mind that the tax savings you can receive will usually outweigh any potential impact to your benefits.
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