In today’s competitive workplace, attracting and retaining talent has become more challenging than ever, particularly for small businesses. One way businesses can provide a benefit to their employees is through effective salary packaging, offering significant tax savings to staff without adding additional costs to the business.
Effective salary packaging is commonly employed to attract and retain employees in the public health sector, which benefits from various Fringe Benefits Tax (FBT) concessions. These concessions allow staff to package certain items that would typically incur fringe benefits. However, there are specific expenses that small businesses can package effectively with minimal or no applicable FBT.
These benefits include:
Relocation Costs
If a business incurs these costs, they are likely to be deductible outright. Employees also have the option to salary sacrifice these amounts, reducing their personal Australian tax liability. These costs are exempt from FBT. If an employee chooses to have these costs covered instead of receiving an equivalent salary, they can reduce their taxable income (thus paying less tax), and the employer’s business is not exposed to FBT, avoiding any disadvantage.
The specific costs that qualify for the FBT exemption include:
- Travel costs to Australia for an employee and their family, including trips to organize accommodation and familiarize the family with Australia.
- Visa costs for the employee and their family.
- Cost of removal and relocation of furniture and personal effects.
- Costs of temporary accommodation and any costs of connecting telephone, gas, and electricity for this accommodation.
- Meals at hotels for an employee and family while in the process of sourcing accommodation (if applicable).
- Incidental costs on the sale of the employee’s property and the purchase of a home in Australia, such as stamp duty, legal fees, and real estate commission on sale.
Motor Vehicle
There are various FBT-exempt vehicles that could be purchased for an employee if they wish to explore this option. Broadly, the car has to be a single or dual cab ute with a carrying capacity of more than 1 tonne, and its use must be primarily for work. Recently, the government has allowed an FBT exemption on various electric vehicles; however, the list of vehicles is quite restrictive and must cost less than the Luxury Car Tax threshold. The concept of packaging a vehicle is similar to the above. Instead of paying a salary to an employee, a business can pay their car expenses to the equivalent value. This reduces the employee’s taxable income, resulting in less tax payable. There is no FBT payable by the business, ensuring they are not out of pocket.
If salary packaging is something you wish to take advantage of, please contact your advisor at Abbotts on +61 8 9321 2642. We can provide tailored taxation advice that suits your needs and assist with the implementation of these arrangements with your payroll provider.
