Fringe benefits tax - a guide for employers

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Chapter 1 - What is fringe benefits tax

1.1 What is a fringe benefit?

A fringe benefit is a 'payment' to an employee, but in a different form to salary or wages.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee . The 'employee' may even be a former or future employee.

An employee is a person who is entitled, or has been entitled, to receive salary or wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of 'employee' in the FBT legislation.

The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services. For example, a fringe benefit may be provided when an employer:

• allows an employee to use a work car for private purposes
• gives an employee a cheap loan
• pays an employee's gym membership
• provides entertainment by the way of free tickets to concerts
• reimburses an expense incurred by an employee, such as school fees
• gives benefits under a salary sacrifice arrangement with an employee.

If you conduct your business through a company or trust, you may be an employee of the company or a trustee.

As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee.

When we refer to 'you' in this guide, we are referring to you as an employer.

Example: benefit provided in respect of employment

David is an employee and is employed under the provisions of a particular industrial award. The award requires David's employer to reimburse David for his home telephone rental costs. David's employer reimburses him, but only because of the award provisions.

If David was not an employee, the reimbursement would not have been made. Therefore, reimbursement is a benefit provided in respect of employment and, consequently, it is a fringe benefit.

A benefit that is not provided in respect of employment is not a fringe benefit.

Example: benefit not provided in respect of employment

An adult daughter, Sarah, is employed in the family business. Her parents give her a birthday present. The gift is given because of the family relationship and would have been given even if Sarah had not been employed in the family business.

Although the recipient of the gift is an employee, the gift was not provided in respect of employment and, therefore, is not a fringe benefit.

To simplify the explanations in this guide, we generally discuss cases where the fringe benefit is provided directly by an employer to an employee. However, a fringe benefit may be provided by an associate of the employer or under an arrangement between a third party and the employer. It may also be provided to an associate of the employee (for example, a relative).

1.2 Who pays the tax?

FBT is paid by you, as the employer.

You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations. Following changes to income tax legislation, these withholding obligations may apply to payments made to an Australian resident employee working overseas.

If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand which currently include FBT).

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

This is the case regardless of whether you actually provide the benefit, or it is provided by an associate or under an arrangement you have with a third party.

This tax is payable whether or not you are liable to pay other taxes such as income tax.

You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

1.3 Are you providing fringe benefits?

The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.

• Do you make cars or other vehicles owned or leased by the business available to employees for private use, including a car garaged at the employee's place of residence?
• Do you provide loans at reduced interest rates to employees?
• Have you released an employee from an owed debt?
• Have you paid for, or reimbursed, a non-business expense incurred by an employee?
• Do you provide a house or unit of accommodation to your employees?
• Do you provide employees with living-away-from-home allowances?
• Do you provide entertainment by the way of food, drink or recreation to your employees?
• Do any of your employees have a salary package arrangement in place?
• Have you provided your employees with goods at a lower price than they are normally sold to the public?

1.4 Types of fringe benefits

So that specific valuation rules can be used, fringe benefits have been categorised into 13   different types. These benefits are dealt with separately in their respective chapters in this guide.

To help you decide which chapters you may need to read, we briefly describe each type of fringe benefit here.

In the following descriptions, it is presumed that the benefit is provided in respect of employment and is, therefore, a fringe benefit.

Car fringe benefit

A car fringe benefit commonly arises where you make a car you own or lease available for the private use of an employee. A car is taken to be made available for private use by an employee on any day the car:

• is actually used for private purposes by the employee or associate
• is not at your premises, and the employee is allowed to use it for private purposes
• is garaged at their place of residence, regardless of whether they have permission to use it privately.

As a general rule, travel to and from work is private use of a vehicle.

Private use of a motor vehicle that is not a car may give rise to a residual fringe benefit.

Debt waiver fringe benefit

A debt waiver fringe benefit arises where you waive or forgive an employee's debt. For example, if you sold goods to an employee and later told them not to bother about paying the amount invoiced for the goods, you have provided a debt waiver fringe benefit.

A debt owed by an employee that you write off as a genuine bad debt is not a debt waiver fringe benefit.

Loan fringe benefit

A loan fringe benefit arises where you provide a loan to an employee and charge a low rate of interest (or no interest) during the FBT year. A low rate of interest is one that is less than the statutory rate of interest. We publish this rate in a tax determination each year, usually in April.

The use of the term 'loan' is quite broad. For example, if an employee owes you a debt but you don't enforce payment after the debt becomes due, the unpaid amount is treated as a loan to the employee. Such a loan commences immediately after the due date, at the rate of interest (if any) that accrues on the unpaid amount.

Expense payment fringe benefit

An expense payment fringe benefit may arise where you:

• reimburse an employee for expenses they incur
• pay a third party for expenses incurred by an employee.

In either case, the expenses may be business or private expenses, or a combination of both but they must be incurred by the employee.

Housing fringe benefit

If you provide an employee with the right to use a unit of accommodation and that unit of accommodation is the usual place of residence of the employee, the right to use the unit of accommodation is a housing fringe benefit.

A unit of accommodation includes:

• a house, flat or home unit
• accommodation in a house, flat or home unit
• accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters
• a caravan or mobile home
• accommodation on a ship or other floating structure.

The employee doesn't have to have exclusive use of the accommodation.

Living-away-from-home allowance fringe benefit

If you pay an employee a living-away-from-home allowance, you are providing a living away from home allowance fringe benefit.

For FBT purposes, a living-away-from-home allowance is an allowance you pay to an employee. It is intended to compensate for additional expenses incurred and any disadvantages suffered because the employee has to live away from home to perform employment-related duties. Additional expenses don't include expenses the employee could claim as an income tax deduction.

Airline transport fringe benefit

An airline transport fringe benefit arises where employees of airlines or travel agents are provided with free or discounted air travel on a stand-by basis.

Board fringe benefit

A board fringe benefit may arise if you provide an employee with accommodation and there is an entitlement to at least two meals a day - the meals may be a board fringe benefit.

Examples include:

• meals provided in a dining facility located on a remote construction site, oil rig or ship
• meals provided to a live-in housekeeper or to resident teachers in a boarding school.

Entertainment

The provision of entertainment means the provision of entertainment by way of food, drink or recreation. There is no category of fringe benefit called an entertainment fringe benefit, but the following types of fringe benefits may arise from providing entertainment:

• an expense payment fringe benefit - for example, the cost of theatre tickets purchased by an employee and reimbursed by the employer
• a property fringe benefit - for example, providing food and drink
• a residual fringe benefit - for example, providing accommodation or transport in connection with such entertainment
• a tax-exempt body entertainment fringe benefit (only employers who are exempt from income tax).

Tax-exempt body entertainment fringe benefit

A tax-exempt body entertainment fringe benefit may arise where you incur entertainment expenses and you are wholly or partially exempt from income tax, or don't derive assessable income from the activities related to the entertainment.

Only entertainment expenditure that is non-deductible for income tax purposes can give rise to a tax-exempt body entertainment fringe benefit.

Car parking fringe benefit

Broadly, a car parking fringe benefit may arise where you provide car parking for an employee at or near their place of employment, and:

• there is a commercial parking station available for all-day parking within a one-kilometre radius of the premises on which the car is parked, and
• that commercial car parking station charges a fee for all-day parking that is more than the car parking threshold.

The car parking threshold is indexed in line with the consumer price index. It is announced each year in a tax determination, usually published in April.

Property fringe benefit

A property fringe benefit arises where you provide an employee with free or discounted property.

Residual fringe benefit

Any fringe benefit that is not subject to any of the above categories is called a residual fringe benefit. Essentially, these are the fringe benefits that remain or are left over because they are not one of the more specific categories of fringe benefit.

A residual fringe benefit could include providing services (such as travel, or the performance of professional or manual work) or the use of property.

1.5 Exemptions from FBT

A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT. For details of these exemptions, refer to Fringe benefits tax exempt benefits .

There are also a range of concessions available. Some of these concessions reduce the taxable value of a fringe benefit to nil, whereas others provide only a partial reduction. The concessions relevant to each type of benefit are listed in the respective chapters of this guide, or you can refer to Reductions in fringe benefit taxable value .

1.6 Reducing your FBT liability

There are various ways you can reduce your FBT liability - sometimes to nil. You can reduce an FBT liability in the following ways.

Replace fringe benefits with cash salary

If you replace an employee's fringe benefits with the cash equivalent in the form of salary or wages, the employee pays income tax on the salary or wages, rather than you paying FBT.

Provide benefits that are exempt from FBT

If you provide only exempt benefits, or benefits that are not fringe benefits, you will not have an FBT liability.

Provide tax deductible benefits

You may not have an FBT liability if you pay for or reimburse an expense an employee would otherwise have been able to claim as an income tax deduction.

Use employee contributions

In most cases, you can reduce your FBT liability by obtaining a payment from an employee towards the cost of providing a fringe benefit. The payment is commonly called an employee contribution.

Generally, the payment is a cash payment made to you or the person who provided the benefit. However, an employee can also make an employee contribution towards a car fringe benefit by paying a third party for some of the operating costs (such as fuel) that you don't reimburse. Contribution of services as an employee is not considered an employee contribution for FBT purposes.

Important points to note about employee contributions are:

• the employee contribution must be paid out of the employee's after-tax income
• an employee contribution towards a particular fringe benefit can't be used to reduce the taxable value of any other fringe benefit
• in certain circumstances, journal entries in your accounts can be an employee contribution
• an employee contribution paid directly to you (including those received by journal entry) is included in your assessable income
• an employee contribution paid to a third party who is not an associate (for example, to a mechanic for the servicing of a car) is not assessable to you
• an employee contribution (other than a contribution of services as an employee) may be treated as consideration for a taxable supply for goods and services tax (GST) purposes. Accordingly, you would have to pay GST on the supply. However, there is no GST payable on an employee's contribution where
  • the benefit is GST-free or input taxed
  • the GST is paid to a third party (for example, to purchase fuel)
  • you (or another provider of the benefit) are not registered or required to be registered for GST
  • the benefit is not a taxable supply.

When calculating the taxable value of the benefit, the full amount of the contribution (GST-inclusive amount) is used to reduce the taxable value of the benefit.

1.7 What is not subject to FBT?

Not all benefits provided in respect of employment are fringe benefits. The FBT legislation excludes certain benefits from being fringe benefits. These include the following.

Salary or wages

Payments of salary or wages are not fringe benefits. The term 'salary or wages' means a payment from which an amount must be withheld.

Employee share schemes

Benefits arising to employees from the acquisition of shares, or rights to acquire shares, are not fringe benefits if the share acquisition scheme conforms to the necessary income tax requirements. This exemption extends to relatives of employees.

Superannuation

The following are not fringe benefits:

• contributions you make to a superannuation fund for an employee, provided you have reasonable grounds for believing the fund is a complying fund. To have reasonable grounds for believing a fund is a complying superannuation fund, you must obtain an appropriate written statement from the fund trustee
• contributions you make to a foreign superannuation fund for superannuation benefits for an employee where the employee is a temporary resident when the contribution is made
• payments you make to a retirement savings account held by an employee.

However, superannuation contributions you make for an associate of an employee are subject to FBT.

Employment termination payments

Employment termination payments are not fringe benefits. Broadly, employment termination payments are payments made as a result of terminating the employment of an employee (for example, a lump sum paid on retirement).

Property you transfer to an employee in relation to terminating their employment is an employment termination payment (for example, a company car you give or sell to an employee on termination).

Payments of a capital nature

Payments of a capital nature for a legally enforceable contract in restraint of trade, or for personal injury to a person, are not fringe benefits.

First home saver account (FHSA) payments

The following are not fringe benefits:

• reimbursements you make to an employee for their personal FHSA contribution
• contributions you make to an FHSA for an employee.

Dividends

Payments of amounts deemed to be dividends are not fringe benefits.

Payments to associates

Certain payments made by partnerships and sole traders to relatives and other associates that are deemed not to be assessable income, are not fringe benefits.

1.8 Reportable fringe benefits

If an employee receives certain fringe benefits with a total taxable value of more than $2,000 in an FBT year (1   April to 31   March), you must report the grossed-up taxable value of the benefits on their payment summary for the corresponding income year (1   July to 30   June). This is called their reportable fringe benefits amount .

Benefits must be allocated to the relevant employee, including any fringe benefits you provide to associates of the employee. If employees share a benefit, you must allocate the respective share of the benefit to each of the employees. The total value of all benefits provided to a particular employee in an FBT year is known as their individual fringe benefits amount .

Before 1   April 2007, the fringe benefits reporting exclusion threshold was $1,000.

Find out more Reportable fringe benefits .

1.9 What are the GST consequences of providing benefits?

GST (input tax) credits

Acquisitions made to provide fringe benefits have a GST creditable purpose, and you are entitled to GST credits for these acquisitions if you are registered or required to be registered for GST. However, there are some exceptions to this general rule, such as where the acquisition relates to a GST-free or input taxed supply.

If you are entitled to a GST credit in providing a fringe benefit, you use the higher gross-up rate (called type   1) to calculate the FBT payable.

Find out more On calculating FBT payable, refer to Calculating fringe benefits tax .

GST on employee contributions

Where an employee or associate receives a fringe benefit or exempt benefit, and makes a contribution or payment (other than a contribution of services as an employee) to you for supplying the benefit, you have to pay GST on that supply if you are registered or required to be registered for GST purposes.

The contribution or payment (excluding recipient's rent - refer to Housing fringe benefits ) is the price of that supply. Therefore, 1/11th of that amount is the GST payable by you.

Where an employee makes a contribution by paying a third party - for example, they purchase fuel or oil in respect of a car fringe benefit - you don't have to pay any GST. In such cases, GST has already been paid when the third party made the sale to the employee or associate.

Contributions related to GST-free or input taxed supplies are not taxable supplies and, therefore, no GST is payable on any contribution towards these supplies.

Also, if you are not registered or required to be registered for GST, you would not pay GST on an employee contribution.

Example

During the FBT year ending 31   March 2014, a hardware retailer provides their employee, Derek, with a car benefit. The FBT value of the benefit is $7,000. Derek pays $5,500 to his employer on 15   April 2013, and $1,000 in petrol costs and $500 car insurance during the year ending 31   March 2014. Because the total employee contribution of $7,000 equals the FBT value of $7,000, the FBT taxable value of the benefit is zero.

As Derek has contributed $5,500 directly to his employer, the employer is liable for GST of one-eleventh of $5,500 - that is, $500. Derek's payments of $1,500 to third parties are not a contribution for the supply of the benefit for GST purposes and his employer does not have to remit one-eleventh of this contribution.

GST and the value of fringe benefits

When calculating the taxable value of a benefit, the value of the fringe benefit is the GST-inclusive value where applicable.

Where the otherwise deductible rule applies, you reduce the taxable value of a fringe benefit by the hypothetical income tax deduction the employee would have been entitled to if they had incurred the expense. In these situations, you take into account the GST-inclusive value where applicable.

1.10 What are the income tax consequences of providing benefits?

The cost you incur in providing either a fringe benefit or exempt benefit is usually an allowable income tax deduction. However, the income tax legislation specifically prevents some benefits from being deductible. Entertainment expenses are the main exception to the tax deductibility rule and are generally not an allowable income tax deduction. For more about entertainment and tax deductibility, refer to section   14.15 of Fringe benefits tax and entertainment.

You would also have to include any employee contributions paid directly to you (including those received by journal entry) in your assessable income. Employee contributions paid to a third party who is not an associate (for example, for fuel) are not assessable to you.

The amount of FBT you have paid is generally an allowable income tax deduction. If an employee reimburses you for the FBT paid, the reimbursement is included in your assessable income. However, it is not an allowable deduction for the employee.

A fringe benefit is exempt income in the hands of the recipient.

Where a GST credit is available in respect of a fringe benefit, the income tax deduction is the GST-exclusive value of the fringe benefit. If no GST credit is available, the income tax deduction is the full amount paid or incurred on the relevant acquisition, including GST where applicable.

Where an employee contributes towards a GST taxable sale, you include the GST-exclusive value of the contribution in your assessable income.

1.11 Salary sacrifice

What is a salary sacrifice arrangement?

A salary sacrifice arrangement is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value. A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging.

Under an effective arrangement:

• the employee pays income tax on the reduced salary or wages
• you, as the employer may be liable to pay FBT on the fringe benefits provided
• salary sacrificed superannuation contributions are classified as employer superannuation contributions (not employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject.

What are the requirements for an effective salary sacrifice arrangement?

It must be an arrangement before services

An effective salary sacrifice arrangement is an arrangement between an employer and an employee detailing the amount of salary or wages income to be sacrificed. The arrangement should be entered into before the work is performed. If the arrangement is put into place after the work has been performed, the salary sacrifice arrangement may be ineffective.

It is advisable that you and your employees clearly state and agree on all the terms of any salary sacrifice arrangement. Employees who enter into an undocumented salary sacrifice arrangement may encounter difficulty establishing facts at a later date.

Subject to the terms of any contract of employment or industrial agreement, employees can renegotiate a salary sacrifice arrangement at any time. Where you have a renewable contract with an employee, the employee can renegotiate amounts of salary or wages to be sacrificed before the start of each renewal.

There should be an agreement between the employer and employee

The relationship between you and an employee starts when you enter into a contract of employment with each other before personal services are performed. The contract is usually in writing, but may be a verbal one.

The contract of employment includes details of an employee's remuneration, including any salary sacrifice arrangement. This contract can be varied by agreement between you and the employee.

There should be no access to the sacrificed salary

The employee should not have any access to the salary being sacrificed for the period of the arrangement. Any benefit entitlements that are provided by way of cash payments of benefits may form part of normal salary and wages. This includes deposits you make to an employee's bank savings account.

If a fringe benefit has not been provided and is cashed out at the end of a salary sacrifice arrangement accounting period, the amount cashed out is salary and is taxed as normal income.

What types of benefits can be included in a salary sacrifice arrangement?

All non-cash benefits can be sacrificed. The important thing is that these benefits form part of the employee's remuneration, replacing what could otherwise have been paid as salary. The types of benefits employers generally provide in salary sacrifice arrangements include employer superannuation, fringe benefits and exempt benefits.

Superannuation

Superannuation contributions you make under a salary sacrifice arrangement to a complying superannuation fund for the benefit of an employee are not fringe benefits.

Where such contributions are paid for the benefit of an associate, such as a spouse, they are considered to be a fringe benefit. Similarly, where such contributions are paid to a non-complying superannuation fund, they will be considered to be a fringe benefit.

Fringe benefits

Fringe benefits provided in salary sacrifice arrangements are often car fringe benefits and expense payment fringe benefits, such as payment of an employee's loan repayments, school fees, child care costs and home telephone costs.

Exempt benefits

A specific provision of the FBT legislation states that certain benefits are exempt from FBT. For example, expense payments, property or residual benefits arising from the provision of certain work-related items are commonly provided in salary sacrifice arrangements. For more on the provision of certain work-related items exemption, refer to section   20.8 of Fringe benefits tax exempt benefits.

Donations made under salary sacrifice arrangements

The government has amended the FBT law from 1   April   2008 to ensure that donations made to a deductible gift recipient (DGR) under salary sacrificing arrangements don't result in employers incurring an FBT liability.

What are the implications of an effective salary sacrifice arrangement for employers?

FBT

A salary sacrifice arrangement giving employees a non-cash benefit may result in you having FBT obligations for those non-cash benefits.

Assessable income

The reduced salary amount specified in a salary sacrifice arrangement becomes the employee's assessable income.

GST

If you are registered for GST, you may be able to claim a GST credit for GST paid in providing the benefit. For fringe benefits that are subject to GST and where you hold a valid GST invoice, you are entitled to claim the GST credit when submitting your activity statement.

Employee contributions

The taxable value of a benefit may be reduced through the payment of employee contributions. The amount sacrificed does not count as an employee contribution when determining the taxable value of any fringe benefits the employee receives. Employee contributions must be paid out of the employee's after-tax income.

PAYG withholding and payment summaries

PAYG tax withheld should be based on gross salary and wages paid and should not include salary-sacrificed amounts. The employee's PAYG payment summary should show the gross amounts of all salary and wages (excluding salary-sacrificed amounts) and the relevant total amount of PAYG tax withheld for the year.

Where an employee's individual fringe benefits amount is more than $2,000 (that is, the equivalent grossed-up taxable value of $3,738), you must report the grossed-up value on their payment summary.

What are the implications of an effective salary sacrifice arrangement for employees?

Assessable income

The employee pays income tax on the reduced salary but will receive the reduced salary plus non-cash benefits. Sometimes employees make employee contributions out of their after-tax income towards the cost of providing the benefit.

FBT

You are liable for any FBT payable on the benefits received. The FBT payable is determined at the highest marginal income tax rate, including the Medicare levy (that is, 46.5   cents in the dollar). However, you may ask the employee to contribute towards the FBT payable.

Reportable fringe benefits

If the total taxable value of certain fringe benefits received by an employee in an FBT year (1   April to 31   March) exceeds $2,000, you must report the grossed-up taxable value of those benefits on their payment summary for the corresponding income year (1   July to 30   June).

As employees don't pay income tax on fringe benefits, the grossed-up taxable value of a benefit reflects the gross salary that would have to be earned to purchase the benefit from after-tax dollars. This is calculated at the highest marginal tax rate, including the Medicare levy.

The value of fringe benefits reported on a payment summary is known as the reportable fringe benefits amount . The sum of an employee's reportable fringe benefits amounts from every employer for a year is called the reportable fringe benefits total .

The reportable fringe benefits total is not included in the employee's assessable (or taxable) income and does not affect the amount of basic Medicare levy payable. However, the total will be used to calculate a number of income tests relating to government benefits and obligations.

Before 1   April 2007, the reporting exclusion threshold was $1,000.

Example: salary sacrifice

Liz works as a sales manager and receives an annual salary of $65,000. She wants to salary package a $35,000 car under a novated lease agreement.

The following example shows the different outcomes of salary versus salary packaging and employee contributions versus no employee contributions and the effect of a reportable fringe benefits amount on an employee's payment summary.

Note: This example uses the FBT, Medicare Levy and Income Tax rates that applied for the 2014 FBT and Income Tax years.

From 1 April 2014 the FBT rate is 47% and and the type 1 gross-up rate is 2.0802. From 1 July 2014 the Medicare Levy rate is 2%,

Car expenses and running costs			FBT calculations (using the statutory formula method)	Without employee contributions	With employee contributions
Lease payments		$8,000	Base value of car	$35,000	$35,000
Fuel and oil		$1,100	X applicable statutory % for kilometres travelled	11%	11%
Repairs		$1,000	Taxable value of car benefit	$3,850	$3,850
Insurance		$800	Less employee contributions	$NIL	$3,850
Registration (GST free)		$600	X gross-up rate	2.0647	2.0647
Total car expenses		$11,500	Grossed-up taxable value	$7,949	$NIL
Less: GST credits (one-eleventh of $11,500 - registration of $600)		$991	X FBT rate	46.5%	46.5%
GST-exclusive car expenses total		$10,509	FBT payable by employer	$3,696	$NIL
To calculate the salary sacrifice amount and the cost to the employer:
Add	the GST-exclusive value of car expenses paid by the employer			$10,509	$10,509
Add	any FBT payable			$3,696	$NIL
Add	any GST payable on employee contributions			$NIL	$350
Less	any employee contributions (GST-inclusive) to employer (paid for out of employee's income after tax has been deducted)			$NIL	$3,850
Salary sacrifice amount				$14,205	$7,009

Using the above figures, the following table illustrates how salary sacrificing and employee contributions work by comparing the net disposable income for each scenario.

	Salary only (no packaging)	Salary + car ( without employee contributions)	Salary + car ( with employee contributions)
Annual remuneration	$65,000.00	$65,000.00	$65,000.00
Less salary sacrifice amount (SSA)	$NIL	$14,205.00	$7,009.00
Taxable income	$65,000.00	$50,795.00	$57,991.00
Less income tax (rates as at 1/7/14)	$12,672.00	$8,055.08	$10,394.08
Less 1.5% Medicare levy	$975.00	$761.92	$869.86
Income after tax and SSA	$51,353.00	$41,977.70	$46,727.06
Employee contribution (paid for out of employee's income after tax has been deducted)			$3,850.00
Less car expenses	$11,500	NIL	NIL
Net disposable income	$39,853.00	$41,977.70	$42,877.06
Reportable fringe benefits amount for employee payment summary	$NIL	$7,196 ( car fringe benefit of $3,850   x   1.8692)	$NIL

This example is intended to be a guide only to illustrate how salary packaging can work. It is not intended to be advice, whether legal or professional. You should not act solely on the basis of the information in this example as it has been generalised and the tax laws apply differently to different people in different circumstances. Specific advice should always be obtained from a tax professional or financial advisor.

Find out more Reportable fringe benefits .

More information

For more information, you can refer to:

• Miscellaneous Taxation Ruling MT   2050 - Fringe benefits tax: payment of a recipients contribution by journal entry
• Taxation Ruling
  • TR   2007/12 - Fringe benefits tax: minor benefits
  • TR   2001/10 - Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements .

Changes and updates

The electronic version of the guide is reviewed on a quarterly basis. The following tables detail any major changes and updates made to this chapter at each review.

2010 calendar year

Quarter 1

Section	Changes and updates
1.3 Are you providing fringe benefits?	Expanded first item in checklist for clarity.
1.4 Types of fringe benefits	Under 'Car fringe benefit', amended last dot point for clarity.
1.7 What is not subject to FBT?	Updated the first paragraph to clarify that the most common exclusions are outlined. Changed terminology from 'Eligible termination payment' to 'Employment termination payment'. Included addition of information about 'First home saver account' payments.
1.8 Reportable fringe benefits	Updated to reflect a change in the reporting exclusion threshold.
1.11 Salary sacrifice	Under 'What type of benefits' can be included in a salary sacrifice arrangement, updated 'Exempt benefits' information regarding provision of certain work-related items. Included information about announced exemption for donations made under a salary sacrifice arrangement. Under 'What are the implications of an effective salary sacrifice arrangement for employers?', updated information in attention box to reflect change to reportable fringe benefits threshold. Under 'What are the implications of an effective salary sacrifice arrangement for employees?', updated reportable fringe benefits information to reflect change to reportable fringe benefits threshold. Example updated for the 2013-14 year.
More information	Removed reference to Salary sacrifice arrangements for employees and included reference to Taxation Ruling TR 2007/12 . Removal of reference to the addendum for TR 2001/10 as the hyperlink is to the consolidated version of the ruling.

Quarter 2

Section	Changes and updates
1.2 Who pays the tax?	Updated to take into account changes to section   23AG of the Income Tax Assessment Act   1936 .

Quarter 3

Section	Changes and updates
	Nil.

2014 calendar year

Quarter 1

Section	Changes and updates
11. Salary sacrifice	Amended to show reference to new FBT rate and gross-up rate effective from 1 April 2014.

Last Modified: July 2014

ATO references:
NO NAT 1054