What benefits can you provide to employees that will save tax?

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The following areas where you can save on taxes are discussed below with the help of a tax advisor, despite the decreasing number of opportunities to benefit from salary packaging.

Motor Vehicles

Motor vehicles are one of the most used fringe benefits. Motor vehicles can be packaged for employees using the operating cost or statutory formula method.

The operating cost method calculates the fringe benefit cost based on the business use percentage determined using a log book.

The statutory formula method values the car fringe benefit by applying the statutory percentage to the car’s base value. This method is concessional as the statutory percentage remains the same, irrespective of the private use of the vehicle.

The statutory percentage is a flat 20%. The taxable value of a car fringe benefit is calculated as the car’s base value multiplied by the statutory fraction, multiplied by the number of days available for private use. The taxable value of a car fringe benefit can be reduced by an employee contributing to the cost of the car. As the calculation takes no account of private use, cars packaged in this way can generate a very good tax result, especially if their cost is lower (ie under $40,000).

As a simple example – A car with a base value of $25,000 and, say, annual costs of $10,000 could be provided to an employee as part of their remuneration package. Even if the car did no business use and were available to the employee all year, the taxable value of the fringe benefit would be $5,000 ($25,000 x 20%). Considering finance costs and depreciation, running a car like this would cost over $10,000 pa. By packaging this car, you have effectively obtained a business use of at least 50% for a car without actual business use.

Work-related Items

The following work-related items can be packaged to your employees as exempt items not subject to FBT;

  • portable electronic devices such as mobile phones, laptops, tablets, portable printers and GPS navigation receivers
  • computer software
  • protective clothing
  • briefcases
  • tools of the trade.

The FBT exemption is limited to the following:

  1. items primarily for use in the employee’s employment
  2. one item per FBT year for items with a substantially identical function unless the item is a replacement item.

From 1 April 2016, the exemption extended to small businesses that provide employees with more than one work-related portable electronic device in an FBT year – even if the devices have substantially identical functions.

Otherwise deductible – Expense payment benefit

Where an employer pays an expense on behalf of an employee, the taxable value of the benefit for FBT purposes is reduced to the extent the employee would have been entitled to claim an income tax deduction (otherwise deductible). This can lower the expense cost as the GST can then be claimed as a credit by the business, thus lowering the expense cost to the employee.

Minor benefits

Minor benefits are exempt benefits. A minor benefit is:

  • less than $300 in notional taxable value
  • infrequent
  • unreasonable to treat as a fringe benefit. 

Taxi travel

Any benefit arising from taxi travel by an employee is exempt if the travel is a single trip beginning or ending at the employee’s place of work.

Any benefit arising from taxi travel by an employee is also an exempt benefit if the travel is both:

  • A result of the sickness of, or injury to, the employee
  • The whole or a part of the journey directly between any of the following:
    • the employee’s place of work
    • the employee’s place of residence
    • any other place necessary or appropriate for the employee due to sickness or injury.

Like always, there is a need to ensure the record keeping is maintained. Care must be taken when providing fringe benefits to ensure all supporting documentation and declarations are in place.

If you have any queries in relation to the above, don’t hesitate to contact your client manager to discuss.

Kreston Stanley Williamson Team

*Correct as of August 2018

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.

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