With the FBT rate increasing to 47% from 1 April 2014 and 49% from 1 April 2015, the Treasurer announced that the $30,000 cap for concessionally taxed benefits will also increase to $31,177 from 1 April 2015. Given these changes this is a good time to review your staff’s salary packaging options.

Independent schools are generally classified as “rebateable employers” for FBT purposes. This entitles the school to a rebate of 48% of any FBT payable where benefits of a “grossed up” value of $30,000 or less are provided to an employee.

FBT is calculated on the “grossed up” value of a benefit, which reflects the amount of pre-tax income, taxed at the highest marginal rate and Medicare levy, which the employee would have to earn to pay for the benefit from salary.  The gross-up factor used depends on whether the school is entitled to recover GST in respect of their provision of the benefit.

A simple example highlights the benefit of this concession to teachers. A teacher, on a salary of $90,000, decides to salary sacrifice their mortgage payments. Because such payments do not include GST the maximum amount that can be salary sacrificed without breaching the $30,000 cap is $15,899. Usually, this would result in FBT payable of $14,100. However, because the School is entitled to a rebate of 48% of the FBT, the total FBT payable is only $7,332. This tax is recovered from the teacher as an extra salary sacrifice amount so that the school does not incur any cost in providing the benefit.

The teacher has an increase in take-home pay of $1,133, equal to a 2% pay-rise, through simply salary sacrificing their mortgage payments.  

The benefit to staff is even greater where they salary sacrifice a GST-inclusive cost, because the school can recover the GST unlike the employee. In the example below a teacher salary sacrifices their GST-inclusive expenses of $14,421:

The result is an increase in take-home pay of $1,482, equal to a 2.7% pay-rise.

If you wish to discuss how salary packaging can benefit your staff please contact your Nexia Advisor. 

*The FBT grossed up amount is calculated on a GST-inclusive basis, however as set out in the second example, schools can recover the GST in respect of benefits provided to staff. Therefore the employee only has to salary sacrifice $13,208 as the input tax credit of $1,311 is recoverable by the school.