Guidelines of Salary Packaging
- Disclaimer
- Introduction
- Remuneration Packaging
- Administrative Process
- Benefits
- How To Participate In The Scheme
- Example of Salary Packaging
- Frequently Asked Questions
- Forms
Disclaimer
Whilst every care has been taken to ensure the accuracy of the information contained in this site it is not the intention to provide complete information in this guide.
The University strongly urges all staff contemplating salary packaging to seek independent financial planning advice. No person should rely on the contents of this document without first obtaining advice.
The document is provided to interested staff on the understanding that the University of Melbourne is not responsible for the results of action taken on the basis of information in this document nor for any error or omission in this document.
The University of Melbourne hereby expressly disclaims all and any liability and responsibility to any reader of this document in respect of anything done or omitted to be done (or the consequences thereof) by any person in reliance upon the whole or any part of this document.
Introduction
The introduction of Salary Packaging or Flexible Remuneration Packaging is consistent with the University's objective to offer employment conditions which will attract and retain staff of outstanding quality.
The purpose of this guide is to provide staff with information on the FRP scheme, how it works and the associated administrative arrangements.
What is Salary Packaging?
Packaging allows employees to change the structure of their remuneration package and take non cash benefits in lieu of salary.
Who can participate?
All staff that are covered by the University of Melbourne Enterprise Agreement.
Principles
- Participation in the scheme is voluntary
- Staff can sacrifice not normally more than 30% or up to 50% of their gross annual salary.
- Staff should seek independent financial advice when considering salary packaging.
- The University will review the scheme on an annual basis and may amend aspects of the Scheme.
- The cost an employee's remuneration package should be no more than the total cost prior to packaging. Any additional costs in taxation will be passed onto the employee.
- An annual administration fee may apply on specific benefits.
Remuneration Packaging
How does packaging work?
It simply allows staff to elect to take part of their salary as a noncash benefit rather than take home pay.
Benefits received in lieu of cash salary are not assessable under the PAYG system and are taxed in accordance with the Fringe Benefits Tax (FBT) Act.
A number of benefits are either exempt from FBT or are treated concessionally for FBT purposes and may provide the employee with a tax advantage by taking the benefit rather than salary. The level of benefit is dependent upon the employee's marginal tax rate.
Taxation/ Policy issues
The Fringe Benefits Tax Assessment Act, Income Tax Assessment Act and Goods and Services Tax Act define how benefits are to be treated for taxation purposes.
Unlike Hospitals and charitable organisations, the University of Melbourne is not exempt from FBT.
Melbourne University policies set the rules, determines the types of benefits and administrative arrangements that will apply to the FRP scheme.
What is Fringe Benefits Tax?
Fringe Benefits Tax (FBT) was introduced in 1986 to tax the value of benefits given by employers to employees and their associates. FBT ensures the appropriate tax is payable on benefits which are provided in place of or in addition to salary and wages.
FBT is payable by the employer. However, any FBT and related cost associated with the provision of the benefit will be met form the employees package.
Items worth packaging?
In determining the range of benefits to be included in the scheme we are initially offering those benefits which provide the greatest level of benefit.
Benefits attractive for packaging are those benefits that are:
- Treated concessionally for FBT and income tax purposes, such as motor vehicles, additional superannuation; and
- FBT exempt such as car parking, childcare, Sport and Physical Recreation Centre membership,laptop and portable computers etc.
Because the University pays full FBT rates, there is no advantage to staff members salary packaging items such as school fees, health insurance, loans and mortgages.
A review of the benefits offered in the scheme will be undertaken in the future.
Financial Advice
Employees wishing to commence packaging are strongly advised to seek independent financial/ taxation advice particularly in relation to taxation issues and for those items which are more complex (motor vehicles, private superannuation). University staff do not offer financial / taxation advice.
Staff members who do not have their own financial advisor should contact a financial planning consultant.
Any fee associated with obtaining financial advice will be at the cost of the employee and depending on the nature and extent of the advice may be tax deductible.
Administrative Process
How much will it cost?
The program is to be introduced at no additional cost to the University. Where the provision or administration of a benefit results in additional administrative or payroll work a small fee will be charged. The fees will be kept to a minimum and are outlined in the benefits section.
Fees will be deducted on a fortnightly basis and may be tax deductible.
Salary for termination and other purposes
Packaging will not change your salary or your terms and conditions of employment.
Employee's nonreduced gross salary will continue to be used to determine calculations for the following entitlements:
- Employer contributions to Superannuation
- Payment of leave entitlements on termination
- Severance payments
- Annual leave loading
- Overtime and shift penalties.
Ceasing /Varying Packaging
The packaging year runs from the 1 April to 31 March , consistent with the FBT year.
Employees may elect to commence / cease packaging at any time. However, when packaging envolves reimbursement of a purchase made (e.g. Lap Tops, PDA's and Mobile Phones), applications must be made immediately after the purchase has been made. Packaging must be (or commence) in the same FBT year / Tax year as the purchase was made. Retrospective purchases will not normally be packagable.
An employee may request changes to the structure of his/her remuneration package once per annum, this will be on the 1 April.
In addition, an employee may renegotiate his/her package where one or more of the following events occur:
- any change in applicable legislation which will adversely affect all or some of the elements of the employees remuneration package;
- the employee divorces or separates from his/her partner;
- the employee is unfit for duty due to illness or injury and has exhausted his/her entitlement to paid leave at full rate of pay;
- the employee has taken extended leave (including parental leave) and has exhausted his/her entitlement to paid leave at full rates of pay; and
- other events or circumstances approved by the Deputy Principal (Human Resources) on a case by case basis.
What happens if I resign or leave the University?
If an employee leaves the university during a package year, the employee's entitlement to receive benefits stops and their package is ruled off and reconciled at the termination date.
Monies owing are offset against any salary, leave and other remuneration that may be due and payable to employees at the termination date.
The university reserves the right to take legal action to recover all monies owing by employees or former employees to the university.
Review of the scheme
An annual review of the scheme will be undertaken by Human Resources. The review will look at the range of benefits being offered, the administration of the scheme and the provision of services provided by external parties.
The University reserves the right to amend aspects of the Scheme.
Benefits
The scheme offers a range of benefits. These are outlined in the table's below.
In-House Benefits
Several of the benefits are regarded by the ATO as "in house" benefits and provide taxation advantages.
In house benefits can be described as benefits provided by an employer where the benefit is part of the employer’s normal business and an identical or similar benefit is offered to non employees (public).
Allowable Limit
The current ATO rules allow for the first $500 taxable value of these benefit/s to be exempt from fringe benefits tax FBT. This applies on an individual basis, per year (the year is based on the FBT year which is 1 April to 31 March).
The taxable value of the benefit is not the face value of the benefit, in most cases it is 75% of this. This allows staff to sacrifice” in house” benefits to the value of $666 (75% of $666 is $500) without paying any FBT.
In-House Benefits at Melbourne University
| Benefit | Taxable Value | |
|---|---|---|
| MTC Subscriptions | Subscription | 75% of lowest price paid by public |
| Book Shop | Vouchers | 75% of voucher value |
| Asia Link | Membership | 75% of membership fee |
| Ian Potter Museum | Membership | 75% of membership fee |
It is important that the total taxable value of in house benefits taken by an individual staff does not exceed the limit.
If you are salary sacrificing for these benefits you need to consider which benefits you want to take, their value and the timing in regards to the FBT year. Any salary packaging application which exceeds the $500 threshold will not be processed and will be returned to the employee.
Taxation Returns
Please note that if you salary sacrifice an in house benefit you cannot then claim it as a work related tax deduction as part of your tax return.
How To Participate In The Scheme
- Read this website to assist in your understanding of the scheme and clarify any matters
- It is suggested that you seek independent financial advice
- Complete and submit the necessary request form/s
- Receive confirmation from HR that your application has been accepted and processed
- Packaging commences
Example of Salary Packaging
Example 1
Employee with a salary of $65,000 who chooses to package a motor vehicle will obtain an increase in net benefits of $1,806.
| Option | Gross | Tax | Net Benefit |
|---|---|---|---|
| (a) Salary only | $65,000 | $19,045 | $45,955 |
| (b) Salary package Motor vehicle Salary |
$15,309 $46,691 |
$4,709 $12,158 |
$10,600 $37,533 |
| Total | $65,000 | $16,867 | $48,133 |
Assumptions:
- The cost of the vehicle is $25,000
- The vehicle travels 20,000 km per annum
- The monthly lease payments are $550 per month
- The term of the lease is three years with a residual of 40 per cent
- The operating costs of the vehicle are $4,000 per annum
Based on the same assumptions the following net increases would apply at various salary levels:
- $65,000, net increase $ 2,178
- $50,000, net increase $143
- $40,000, net increase $ 92
Example 2
Employee with a salary of $65,000 who chooses to package additional $5,000 per annum in private superannuation will obtain an increase in net benefits of $1,475.
| Option | Gross | Tax | Net Benefit |
|---|---|---|---|
| (a) Salary only | $65,000 | $19,045 | $45,955 |
| (b) Salary package Superannuation Salary |
$5,000 $60,000 |
$750 $16,664 |
$4,250 $43,336 |
| Total | $65,000 | $17,414 | $47,586 |
Based on the same assumptions the following net increases would apply at various salary levels:
- $50,000, net increase $ 815
- $45,000, net increase $ 867
- $40,000, net increase $ 815
- $35,000, net increase $ 815
- $30,000, net increase $ 815
Example 3
Employee with a salary of $65,000 who chooses to package a motor vehicle and superannuation, as detailed in examples 1 and 2, will obtain an increase in net benefits of $2,994.
| Option | Gross | Tax | Net Benefit |
|---|---|---|---|
| (a) Salary only | $65,000 | $14,852 | $35,148 |
| (b) Salary package Motor vehicle Superannuation Salary |
$15,309 $5,000 $29,691 |
$4,709 $750 $6,562 |
$10,600 $4,250 $23,129 |
| Total | $65,000 | $12,021 | $37,979 |
Based on the same assumptions the following net increases would apply at various salary levels:
- $50,000, net increase $ 958
- $45,000, net increase $ 959
- $40,000, net increase $ 967
- $35,000, net increase $1285
Frequently Asked Questions
Q. What are the financial advantages of salary packaging for employees?
Employer provided benefits are treated differently from gross salary under the taxation system. Therefore, employees who sacrifice some of their gross salary and have the University pay for some of their expenses may be financially better off, depending on the benefits packaged and the amount of FBT payable.
Q. Will the University be extending the benefits options in the future?
The range of benefits is revieved periodically.
Q. What administrative charge will I have to pay?
There will be an annual administrative fee, not yet determined on certain items. However, the fee will only include actual costs associated with the package administration.
The fee is deducted fortnightly/weekly (as applicable) from the staff member's net pay and may be claimed as a tax deductible item in the annual taxation return.
Q. What happens to any of my existing entitlements?
All existing entitlements (ie. superannuation, leave loading, penalties, overtime) will be maintained. In other words, all entitlements will be based on the 'pre package' salary.
Q. What savings can I expect to achieve?
The savings you achieve will depend on your personal circumstances and what benefits items included in the package.
Q. Can I change or terminate the package?
An employee can request changes to the structure of the remuneration package once per annum, from 1 April of each year, being aligned to the fringe benefits taxation year ending 31 March.
In addition, an employee may renegotiate the package where one or more of the following events occur:
- any change in applicable legislation which will adversely affect all or some of the elements of the package
- the employee divorces or separates from his/her partner
- the employee is unfit for duty due to illness or injury and has exhausted entitlement to paid leave at full rate of pay
- the employee has taken extended leave(including parental leave) and has exhausted entitlements to paid leave at full rates of pay
- other events or circumstances approved by the University on a case by case basis.
Q. Do I have to package my salary?
No.
Q. Will salary packaging have any impact on:
- My future salary increases?
- My annual leave payments and accruals?
- My sick leave payments?
- My long service leave payments?
No, all of these entitlements will still be funded and paid for on a pre package basis.
Q. What happens if I am absent on sick leave?
Deductions will continue to be made and benefits provided while on paid sick leave.
Q. What about annual and long service leave?
Deductions will continue to be made and benefits provided.
Q. What happens if I go on leave without pay?
Deductions obviously cannot be made if not receiving salary. Payments will need to be arranged from the employees own resources for the period.
Q. What happens if I leave the University?
If an employee leaves the University during a package year, the employees entitlement to receive benefits stops and their package is ruled off and reconciled at the termination date.
Monies owing are off set against any salary, leave and other remuneration that may be due and payable to employees at the termination date. The University reserves the right to take legal action to recover all monies owing by employees or former employees of the University. If insufficient funds are available at termination to offset the monies owed, 30 days grace will be granted for delivery of the monies.
Monies owed to the employee after reconciliation of the package at termination date will be forwarded by cheque to the employee's home address within 30 days of leaving the University. PAYE tax will be deducted from any credit amount due.
Q. What are the traps of salary packaging?
Common traps are:
- Over packaging - not having enough take home pay to meet other expenses
- Superannuation - including superannuation contributions in your package depends on your personal circumstances( eg; current Reasonable Benefits Limit [RBL], Superannuation Surcharge and any other legislative changes).
Q. Is it legal?
Done correctly, remuneration packaging is legal and is already established practice in the private and public sectors. Under an agreed Enterprise Agreement between the unions and the University, the benefits described may be packaged and your cash salary reduced accordingly.
Q. What is Fringe Benefits Tax?
The Fringe benefits Tax Legislation came into operation on 1 July 1986 to tax non cash benefits provided to employees or associates of employees. The main features of the tax are:
- the taxable value of a fringe benefit is grossed up before the application of the tax
- the employer is liable for the tax
- only benefits provided in respect of employment are taxable.
FBT is included within remuneration packages as a component of total employment cost.
Q. What is 'Gross Up'?
'Gross up' is used to define the 'FBT inclusive value' of a fringe benefit. This results in an increased taxable value of a benefit. Gross up applies to all taxable benefits.
Income tax is not paid by employees on fringe benefits received. The benefit reported is therefore 'grossed up'.
'Grossing up' reflects the gross salary that would have to be earned to purchase the benefit from post tax dollars. This is calculated at the highest marginal tax rate , including the Medicare levy.
Forms
All Salary Packaging forms are available from the HR Forms Library