The #1 Unknown Australian Salary Packaging Consequence Your Employees Need to Know About


While business is to be commended for the efforts to share the benefits of salary packaging with employees across the board, it still confounds me that employees are entering into salary packaging arrangements oblivious to the REAL financial impact on their finances.

If you are going to offer a broad based Salary Packaging program to your employees, you MUST educate your employees, or at the very least strongly encourage them to seek independent financial advice from the ATO, their financial planner, tax adviser or accountant.  An employee will be far more encouraged to seek advice, if they understand along with the pros, that there are some serious cons.

The greatest unknown by most Australian employees is the impact of Reportable Fringe Benefits on their assessable income and the consequence of that increased assessable income on their entitlement to government benefits, multiple tax offsets, child support obligations and entitlements and HELP/SFSS repayment calculations.

Employers present calculations to the employees showing the net pay difference between a packaged and non-packaged salary, often without any reference to the potential consequences of their increased Reportable Fringe Benefits amount on their payment summaries.  Employees sign up to the salary packaging programme wholeheartedly, rejoicing in their “extra” income… until they submit their tax return.

Once their tax return is processed, many employees learn a very hard lesson.  Their windfall in undertaking salary packaging, has just earned them lost tax benefits; or an increased debt to the ATO for HELP/SFSS; or the Child Support Agency advises they now owe considerably more Child Support or will receive considerably less; or Human Services advises they owe for overpaid benefits.

While some payroll people may think that the likelihood of this consequence is minimal, consider the number of employees you have with HELP/SFSS debts; that we live in a society where almost half of marriages end in divorce; and that a majority of families with children under the age of 18 are entitled to Family Assistance.

Over the years I’ve implemented this in a few businesses and employees still come to the payroll team at year end and ask why payroll didn’t take enough tax, or why they weren’t advised, when they quite obviously were.  To counteract the employees who don’t read fine print, simply ensure this information is not fine print.  A one page document that they sign and date, prior to undertaking any salary packaging, that clearly outlines the potential consequences and that they need to seek independent financial advice, is all you can do without physically clubbing them over the head or booking the appointment with the financial planner for them.

I can only encourage you to make the effort to implement this information into your salary packaging documentation and enable your employees to ask better questions of their financial advisers and to make more informed decisions.  You will be thanked for it by the reduction in furious or devastated employees, waving their Payment Summaries around at tax time.

This is what you MUST make your employees aware of as a minimum:

Salary Packaging may (because some items are classified as “exempt benefits”) result in an increased “Reportable Fringe Benefits” value on your Payment Summary, which will be used (in addition to your Gross Earnings) to calculate your assessable income for the following:

  • Medicare Levy Surcharge
  • Medicare Levy Surcharge lump sum payment in arrears tax offset
  • Deductions for personal super contributions
  • Super co-contribution
  • Tax offset for contributions to your spouse’s super
  • Mature age worker tax offset
  • Higher Education Loan Program (HELP) and Financial Supplement (SFSS) repayments
  • Dependent tax offsets, including
    • Dependent spouse
    • Child-housekeeper
    • Parent, spouse’s parent or invalid relative
  • Housekeeper tax offset
  • Senior Australians tax offset
  • Pensioner tax offset
  • Your child support obligations and entitlements
  • Your entitlement to certain income-tested government benefits (including Family Assistance)

Before undertaking salary packaging, you are advised to seek independent financial advice from the ATO, a financial planner, tax adviser or accountant.  If any of the above income assessable items affect you, it is imperative that you seek independent financial advice on the impact of salary packaging and increased Reportable Benefits.

The Fringe Benefits Tax year is April 01 to March 31 each year.  The total Reportable Fringe Benefits for this period will be documented on your Payment Summary the following June.

Employees who receive individual fringe benefits of $2,000 or more in a Fringe Benefits Tax year, will have the “grossed up” value of the fringe benefits reported on their Payment Summary.  This is the Reportable Fringe Benefit and the “grossed up” rate is 1.8692.

Therefore, if you receive $10,000 in taxable Fringe Benefits for example, this amount is multiplied (“grossed up”) by 1.8692 and becomes your Reportable Benefits total of $18,692 on your Payment Summary.

The additional amount of $18,692 is added to your gross earnings to calculate your income tested entitlements, outstandings and tax offsets as listed above.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2013 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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