Member Q&A: salary sacrifice at a Public Benevolent Institution and its impacts

Question

I am new to working for a Public Benevolent Institution, and am wondering how salary sacrificed amounts impact the organisations payroll tax, workers compensation and other obligations. The organisation only allows employees to salary sacrifice amounts up to the FBT exemption cap so does not pay FBT.

Answer

Where an organisation allows an employee to salary sacrifice care should be taken to ensure compliance is achieved with various obligations namely:

• Fringe Benefits Tax
• Reportable Fringe Benefits
• Single Touch Payroll/Income Statement reporting
• Payroll Tax
• Workers Compensation

Fringe Benefits Tax, Reportable Fringe Benefits and Single Touch Payroll/Income Statement reporting obligations are imposed at the Federal level so the same rules will apply for all of an organisations employees regardless of where in Australia they work.

Payroll tax and Workers Compensation obligations are imposed at a State/Territory level meaning the treatment of salary sacrificed amounts needs to be considered in the context of the relevant legislation to each employee (usually the State/Territory legislation where the employee works).

By way of an example, let us assume the Public Benevolent Institution is based and only operates in Victoria. The following outcomes occur where employees are only allowed to salary sacrifice up to the FBT exemption cap:

Fringe Benefits Tax

• no FBT payable should be payable in relation to salary sacrificed amounts having a grossed up taxable value at or below the FBT exemption cap provided by section 57A and section 5B of the FBT law. This assumes the employer is an ACNC registered charity with a Public Benevolent Institution sub-type and the salary sacrificing has occurred under an effective salary sacrifice arrangement;

Reportable Fringe Benefits

• despite no FBT being payable, salary sacrificed benefits are still reportable under the ‘quasi fringe benefit‘ reporting rules applicable to section 57A type (and other FBT exempt) employers (with the Type 2 gross up rate being applicable);

Single Touch Payroll/Income Statement reporting

• the correct payroll coding needs to be applied to salary sacrificed amounts to ensure accurate Single Touch Payroll and Income Statement reporting occurs. In particular salary sacrificed superannuation and other salary sacrificed amounts must be correctly coded which results in them being differently classified. In our October article we explored issues regarding correct coding of these types of salary sacrificed amounts;

Payroll Tax

• where the organisation and work performed by the employee in question qualifies for payroll tax exemption (refer section 48 of the Victorian Payroll Tax Act 2007) no payroll tax should be applicable to either salary or wages or salary sacrificed amounts; and

Workers Compensation

• where no FBT liability arises in relation to the salary sacrificed amounts  Clause 21 of Schedule 1 of the Workplace Injury Rehabilitation and Compensation Act 2013  ensures no workers compensation premium should be applicable to the salary sacrificed amounts  payable in relation to the employee (salary paid etc may still be liable however).

As is highlighted above, care needs to be taken to ensure the correct treatment is applied to salary sacrificed amounts. This is initially a function of determining the employer’s correct tax status (for example is FBT or payroll tax exemption available) and then the applying correct rules to each obligation noting State/Territory obligations can differ.

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.