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

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

While there are less opportunities to get advantages from salary packaging as there once was, there are still some areas that can save you tax. The best areas are discussed below.

Motor Vehicles

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

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

The statutory formula method basically 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 base value of the car 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 making a contribution to the cost of the car. As the calculation takes no account of private use, cars packaged in this way can come up with a very good tax result, especially if their cost is on the lower level (ie under $40,000).

As a very 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 was available to the employee all year, the taxable value of the car fringe benefit would be $5,000 ($25,000 x 20%). The actual cost of running a car like this, taking into account finance costs and depreciation, would come to over $10,000 pa. Effectively then, by packaging this car you have obtained a business use of at least 50%, for a car that does no 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 trade.

The FBT exemption is limited to:

  1. items primarily for use in the employee’s employment
  2. one item per FBT year for items that have 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 cost of the expense as the GST can then be claimed as a credit by the business, thus lowering the cost of the expense 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 an exempt benefit 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 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 that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.

Like always, there is a need to ensure the record keeping is maintained. Care must be taken when providing any fringe benefit to ensure that 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 contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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