How Australian not-for-profits can benefit from salary packaging
There are more than half a million Not for Profit organisations (NFPs) in Australia. That's over half a million organisations that can claim some significant benefits in their salary packaging arrangements.
When an NFP establishes a salary packaging deal with staff, they can provide fringe benefits at a much lower cost than for-profit businesses can - something which is incredibly useful for attracting experienced employees in the long run. But how can your organisation properly take advantage of this?
How salary packaging works in Australia
Salary packaging (also known as total remuneration or salary sacrifice) is an arrangement in which staff give up some of their salary in exchange for alternative benefits, paid for by the employer.
The employee pays tax on their reduced wage, while the employer may have to pay fringe benefits tax (FBT) on the alternative given to staff. Additionally, the employer might have to include extra reporting on the benefits in payment summaries for the worker. Common examples of salary packaging benefits include:
- Superannuation contributions (which can then be taxed at an employer rate, rather than an employee one).
- Electronic devices (like computers or smartphones).
This is the general overview of how salary packaging works for most Australia. For NFPs, there are some key differences that may require the services of a business accountant.
How salary packaging works for Australian Not-For-Profits
Australian Not-For-Profits have a much higher threshold for paying FBT than for-profits. NFPs can have capping thresholds of $17,000 per employee or up to $30,000 per employee if they are a public benevolent institution (PBI), whose primary focus is disability, poverty, sickness or suffering, or are a health promotion charity (registered with the ACNC).
On top of this, NFPs under the following categories can claim a 47 per cent rebate on FBT paid at the end of the financial year:
- NFPs focused on music, art, sports, animal races, community services, tourism, aviation, science and information technology.
- NFPs focused on certain industries (aquaculture, viticulture, agriculture, fishing, manufacturing, pasture and industrial resources).
- Public scientific or educational institutions.
While there are further exceptions (like government-founded bodies), the general point is that Not-For-Profits in Australia can provide fringe benefits to staff at a much lower cost than regular businesses can. Additionally, the Australian Securities and Investments Commission notes that NFPs can deliver loan repayments or other cash benefits for staff out of their pre-tax income, furthering salary packaging as an immensely appealing option.
How to make salary packaging work as an NFP in Australia
Setting up a salary packaging arrangement is relatively simple, and not particularly different from doing so as a for-profit. The Australian Taxation Office (ATO) states that a salary packaging deal must state exactly how much income the employee will sacrifice, and the cost of the fringe benefit the employer will take responsibility for.
Further to this, the arrangement must take place before the employee does the work for which they would have been paid the salary.
While salary sacrificing can be a verbal agreement, it is always a good idea to keep everything in writing, so you have comprehensive records - especially if you are going to claim tax benefits at the end of the financial year.
Who can help with salary packaging for NFPs?
While the tax breaks the ATO affords to NFPs are excellent, they also require strict compliance with the letter of law. Additionally, the elevated benefits of salary packing for NFPs means they are more likely to engage in these arrangements than for-profits, given the reduced costs to the employer.
That's why it's critical to use the right professionals to ensure your salary sacrifice deals are airtight. To ensure your NFP is tax-compliant and totally eligible for the rebates at the end of the financial year, contact the experts at DFK Crosbie.
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