Tax advantages for those working in a Public Benevolent Institution
A PBI can be defined as a non-profit organisation set up for the relief of those experiencing deprivation such as poverty, sickness, disability etc. To be endorsed by the Australian Taxation Office (ATO) a PBI must:
- be set up to provide direct services for those experiencing hardship
- provide benevolent relief as its dominant purpose
- exist for public benefit.
Once endorsed by the ATO as a PBI, the institution has access to charity concessions and income tax and FBT exemptions.
Employees of PBIs may be eligible to access the FBT exemption by salary packaging up to $16,049 of tax free benefits each FBT year.
The types of fringe benefits an individual may salary package could include liabilities such as mortgage payments or health insurance premiums.
For example, Judy, a doctor in a medical clinic, has decided to receive mortgage payments instead of salary. She has arranged for her employer to make monthly mortgage repayments of $1,337 as a fringe benefit. ($1,337 * 12 monthly payments = the $16,049 cap).
By taking advantage of salary packaging, Judy’s taxable income is reduced by the amount of her repayments.
Judy’s salary package comparison |
Pre salary packaging |
Post salary packaging |
Total salary |
$100,000 |
$100,000 |
Before tax mortgage payments |
|
$16,049 |
Assessable income |
$100,000 |
$83,951 |
Tax & other levies payable |
$31,527 |
$24,667 |
After tax mortgage payments |
$16,049 |
|
Adjusted take-home pay |
$52,424 |
$59,284 |
After Judy’s taxable income is reduced she pays less tax and consequently achieves a higher take-home pay. Had she not salary packaged her mortgage payments she would be paying them from her after-tax pay resulting in less cash in her hand.
The net result of salary packaging in terms of tax savings could be substantial.
A point to note is that when the total amount of fringe benefits provided to an employee exceeds $2,000 in an FBT year, the employer must record the grossed-up taxable value of those benefits on their payment summaries, even if the organisation is not liable to pay FBT.
Some organisations provide eligible employees with a salary packaging expense card. The card works like a credit card allowing employees to purchase groceries and pay expenses such as phone/internet, water and council rates, electricity, etc up to a capped limit. The card blocks employees from withdrawing cash.
Salary packaging is a tax strategy which can work effectively for some people and not for others. As with any financial plan, it’s important to always seek the advice of a professional.
Please contact us on 02 9318 6400 or email fred.tortora@surrypartners.com.au if you would like to know whether salary packaging might work for you.
Sources:
www.salarypackagingcards.com.au Public Benevolent Institutions (Copyright 2013)
www.ato.gov.au Reportable fringe benefits (Last modified 24 December 2010)
www.payscale.com Salary for people with jobs as physicians/doctors Australia (updated 11 May 2013)