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NEWS - PLANNING
The benefits of avoiding fringe benefits tax
6/27/2001
Flexible employers can make it cheaper for workers to get technology at home by including it in their salary packages and taking advantage of fringe benefits tax exemptions.
Employers are exempt from paying fringe benefits tax on technology included in salary packages in two categories of circumstances.
The first category allows exemptions for specific technology items, including portable computers and mobile phones.
An employer can provide an employee with one portable computer a year, completely free of FBT, as part of a salary package. This applies even if the employee does not use it for work at all.
An employer can also supply a mobile phone or car phone which is tax free if more than half its use is connected with work.
The advantage for workers is that the money being spent on the technology is pre-income tax.
For a person to buy it themself, they have got to do it with post-tax dollars. So a $2,000 computer is going to cost you, if your tax rate is 30 per cent, $2,600, whereas if you got it through your employer it's only costing you $2,000. In physical dollars it's cheaper," says Frank Brass, the Australian regional director of H&R Block.
This can lead to savings by workers of up to 50 per cent, depending on their income tax bracket.
There is also a GST advantage to having a computer purchased as part of a salary package.
When a computer is purchased through employment rather than after-tax yourself, you can get the GST credits passed on to you through your employer as well.
Including technology in salary packages does not need to cost employers anything. If your salary package is $100,000 and you want to spend $5,000 of that pre-tax on a notebook computer, it's no skin off the employer's nose. It's only in lieu of the salary they would have paid you," says Paul Brassil, a tax partner at PricewaterhouseCoopers.
But Brassil advises employees to check whether this is the best option for their particular circumstances. For example, an employee might want a desk top computer rather than a portable computer. "You've got to find out really what you want or need," he says.
The second category of FBT exemption is much larger and covers any expenditure that would otherwise be deductible under income tax if employees paid for it themselves. This means that technology is exempt from FBT to the extent that it is used in connection with the employee's work.
The major advantage is that it brings forward the benefit of the deduction. So rather than having to earn your income, pay your tax and then fill in your tax return and claim your deduction, you get the equivalent of your deduction up front.
Including technology in salary packages is quite common. If you actually did a statistical survey of the marketplace, however, you'd probably find that there'd be less than 50 per cent of executives that would participate in that sort of program.
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