Salary Sacrifice

[raskolnikov]

Anybody done this? I just purchased a new car and am sacrificing my salary to pay off the loan. I actually end up getting more after tax than I did before I took out the loan.

 

[TheBloods]

I actually end up getting more after tax than I did before I took out the loan.

How's that possible?

 

[raskolnikov]

How's that possible?

Because my employer(Northern Territory Education Department) takes out the loan before they calculate my income which puts me into the lower tax bracket. Don't ask me too much about how it works. I am still trying to figure it out myself. I am a primary school teacher. Advanced Mathematics does my head in.

 

[1jasonoz]

Because my employer(Northern Territory Education Department) takes out the loan before they calculate my income which puts me into the lower tax bracket. Don't ask me too much about how it works. I am still trying to figure it out myself. I am a primary school teacher. Advanced Mathematics does my head in.

Yep ive been doing it for over 11 years for superannuation. You get more in your take home pay, because you generally lower your tax payable.

 

[TheBloods]

Super is a bit different. The only way you do better with cars and the like is if the employer pays your FBT. If you work for the Govt or a non-tax paying entity, then this can happen. For most people, the FBT simply offsets the income tax saved.

 

[catalyst]

I think it's a great idea. I've just bought a new car and am doing this (we call it salary packaging though). You save a lot of money because you aren't paying nearly as much tax as you used to.

 

[Bomber Spirit]

Super is a bit different. The only way you do better with cars and the like is if the employer pays your FBT. If you work for the Govt or a non-tax paying entity, then this can happen. For most people, the FBT simply offsets the income tax saved.

The employer pays FBT, so in most cases it's not worth it for the employer to offer salary packaging.
The exception is if the employer is a Public Benevolent Institution or a public hospital. PBIs are allowed $15,450 per year FBT-free, and public hospitals around $8,000 (can't remember the exact amount, and can't be bothered looking it up - I'm accounts co-ordinator for a PBI, so I know that amount).
But as NMW pointed out, super is different - it's exempt from being counted as a fringe benefit, so no FBT is payable.

 

[janiek]

i think you need to be absolutely sure on the FBT side of things & what you've put down for your annual kms
but for our employees who salary sacrificed for their own private vehicle (rather than any FBT incurred on vehicle owned by us )- some ended up having to pay $000's for FBT shortfall cos they didn;t manage to do the 25,000 kms )

 

[RW]

The employer pays FBT, so in most cases it's not worth it for the employer to offer salary packaging.
The exception is if the employer is a Public Benevolent Institution or a public hospital. PBIs are allowed $15,450 per year FBT-free, and public hospitals around $8,000 (can't remember the exact amount, and can't be bothered looking it up - I'm accounts co-ordinator for a PBI, so I know that amount).
But as NMW pointed out, super is different - it's exempt from being counted as a fringe benefit, so no FBT is payable.

Yeah that would explain why so many people are salary packaging (sacrificing) now at the hospital I work at (though I only work there part-time so it isn't worth it for me - don't pay much tax anyway )

Employers can also get a deduction for FBT, I think.

Also if you're salary packaging a car that you use for work, for example, I don't think you'd be able to claim deductions for the car anymore - since you're effectively being reimbursed for it (because the part of the salary you've sacrificed that's paying for the car is now not part of your gross income on the group certificate). At least this was my understanding of the tax law when I did it at uni - can any accountants out there confirm this?

 

[Mike_B]

The other thing to be aware of is that generally speaking, you won't get any benefit out of packaging a car if you aren't already in the top tax bracket as the FBT rate is the same as the marginal tax rate for the top bracket.

With sacrificing super as an additional voluntary contribution, you have limited amounts you can contribute in addition to what your employer provides based on age. And of course if you are salary sacrificing super, you won't be able to touch that money until you reach retirement.

Basically, every situation is different and seeking financial advice is probably not a bad thing before making a decision to sacrifice/package.

 

[Bomber Spirit]

Also if you're salary packaging a car that you use for work, for example, I don't think you'd be able to claim deductions for the car anymore - since you're effectively being reimbursed for it (because the part of the salary you've sacrificed that's paying for the car is now not part of your gross income on the group certificate). At least this was my understanding of the tax law when I did it at uni - can any accountants out there confirm this?

If the car is owned by the employer, then the employee can't claim the costs of the car as a deduction; as the employee isn't incurring the costs. The fringe benefit to the employee is the private usage of the car, which is generally worked out as a percentage of the vehicle's value depending on how many kilometres are driven. (refer Janiek's post about employees being caught short because they didn't get to 25,000kms over the year).
If you've bought the car and the employer is paying off your loan, then the fringe benefit is a loan payment fringe benefit not a motor vehicle - meaning the reportable value of the benefit is the grossed up amount paid. The employee isn't incurring interest costs, but running costs relating to business use of the private car are still claimable.

 

[Mike_B]

One of the methods of calculating the value (and hence FBT) involves the use of a statutory fraction which is based upon kms travelled in a year. As you drive more kms, the statutory fraction reduces, meaning the FBT payable is reduced. Hence people getting a tax bill if they don't drive enough kms.

 

[RW]

Thanks for that Bomber Spirit - your last post was pretty consistent with my (limited) understanding of FBT. I've worked a bit in tax before but must admit I don't have a lot of experience in this particular area.