What is a Defence Salary Sacrifice?
A defence salary sacrifice is an arrangement where the employee pays into a scheme with an after-tax contribution to offset the employer’s FBT liability. The employee generally has to make minimum contributions for five years, which are deductible. The employee must also get receipts for any cash advances and return excess reimbursements. The tax advantages of a salary sacrifice are outlined in the Defence Revenue Act 1998.
After-tax contribution to offset the employer’s FBT liability
If you’re a Defence member, you may be eligible to make an after-tax contribution to offset the employer FBT liability. This contribution can be made to your or your spouse’s super fund. Salary sacrifice contributions are also a way to reduce your employer’s SG obligations. However, be aware that FBT applies to certain types of fringe benefits.
To benefit from salary sacrifice, the employee must enter into an agreement with their employer before receiving the income or performing their service. Generally, the employee must agree to give up a portion of their gross salary before tax in exchange for a fringe benefit. The taxable value of the fringe benefit is the amount paid by the employer, and the salary sacrifice arrangement is a way for the employer to reduce their FBT liability.
When calculating the taxable value of fringe benefits, the employer must account for various factors, including the value of the benefits. The employer’s FBT liability is the sum of a person’s wages plus post-tax contributions. For example, if an employee receives $5,000 per year in fringe benefits, his employer must include the benefit in the employee’s payroll tax return.
It’s important to document all fringe benefits correctly to avoid any trouble with the ATO. However, keeping records of fringe benefits can be time-consuming, particularly if employees are expected to produce records at specific intervals. For example, if your employees drive company vehicles, consider taking a picture of the odometer reading and sending it to a central contact person. It will save you time.
The FBT system applies to all activities that are related to the business. As such, certain benefits, such as lunches with suppliers and customers, may be subject to FBT scrutiny by the ATO. For example, a small business owner might consider it appropriate to treat a supplier or staff member to lunch and not realise that this is an FBT liability. The value of the meal per head and the frequency of similar benefits received by staff can determine the FBT liability.
For example, an ATT Resources Limited FIFO employee, Monica, lives in SA. She rents a home unit in SA, so the payments she receives from ATT Resources would be taxable wages. However, she could claim the taxable benefit as a deduction.
Defence salary sacrifice can be a good way to reduce the employer’s FBT liability. If your employees are eligible, make sure to record these benefits. Some employees use their vehicles for work purposes, and they are likely to be subject to FBT. The employer must keep detailed records to determine which motor vehicle benefits qualify as exempt.
Cost of a defence salary sacrifice
A salary sacrifice is an arrangement in which a person makes a reduced salary before paying the government tax. The amount of salary sacrificed is reduced by the number of super contributions the employee makes to their super fund or the super fund of a spouse or partner. The arrangement must be made with the employer before starting work and should be in writing.