A Whole New Job
At the beginning of the year I started in a new job moving from being simply an admin monkey to a Salary Packaging Consultant. Whilst there are still admin type moments (particularly now whilst I learn the ropes) the focus of the job is more on customer service and my broader career outlook is now bright.
My job requires a thorough understanding of particular tax laws and so I have primarily been working on learning the laws inside out. I have also been producing spreadsheets and reference materials which should help me out further on down the track. On a side note, it’s interesting how the attitude of my employer is completely different to my old employer. My new employer helped me in producing a reference guide, gave me time to do a good job and afterwards rewarded me with having it laminated and distributed throughout the office. My old employer shunned the creation of reference guides and there was no time or reward for creating one. I am definitely glad that I moved.
As an accounting student I had already been exposed to the tax law, fringe benefits tax (FBT) and salary packaging but I know that not everyone else really understands it. In fact, based on articles I have read, even so called ‘industry experts’ have little understanding of salary packaging or the tax law. The principles of FBT and salary packaging are simple but the application is not. There are subtle intricacies that many don’t understand and as such many falsehoods exist about salary packaging.
So what is salary packaging?
The concept of salary packaging goes back a long way. Some wise employer worked out that if an employee was paid in things (cars, clothes, houses, etc) then the employee would not incur any income tax because income tax is only collected on cash salary or wages. Salary packaging still exists today; although the government has taken measures to stop blatant tax evasion.
What is Fringe Benefits Tax?
FBT is the tax imposed on the other things an employer provides it’s employees. Unlike income tax, the tax rate is set at the highest marginal tax rate to discourage employers paying employees with things. FBT closes the loophole and stops employees from evading income tax. It is also somewhat preventative because very few have to pay the highest rate of tax and even when they do, they still save comparatively because of the marginal tax system.
A Happy Medium
Because of FBT the perception that salary packaging is ineffective (and in some people’s mind illegal) prevailed and the people packaging stopped. Well. It’s not that simple. The government did understand the benefits of salary packaging to both the employer and employee however they didn’t want those with the knowledge and ability to avoid paying tax whilst others (who didn’t know or couldn’t do) had to pay. As such, some concessions were built into the law to allow for certain benefits to be packaged and for certain organisations to be exempt or treated concessionally by the tax. This meant they could stop exploitation of the tax system but still encourage particular employers by providing tax incentives. For example, charity workers provide a public good and so have the ability to salary package and pay no FBT in certain circumstances.
As you can see, the principles are relatively simple. The law is complicated, confusing and constantly changing but the principles remain the same. However, people’s perceptions of salary packaging need to change. If things are too difficult for you to understand, ask someone who does! Almost every employee in Australia could benefit from salary packaging if only they talked to people who knew. There are some limitations and restrictions but salary packaging is not just for the ‘rich’ and anyone who thinks or says so doesn’t understand the intent of the law. The whole point of FBT is for equity in the tax system - stopping the rich from having an advantage.
The best thing about my employer is that they are honest and transparent in their dealings with customers. Many other salary packaging companies are not and as such the industry is tarnished and people again think of salary packaging as dirty and illegal. In some circumstances other companies do fall foul of the law and their clients (those liable to pay the tax) have no idea whilst I sit back and hope they are audited. Let’s face it; the industry standard can’t be that high if after working for three weeks I already know more than people who have been in the industry for years. That is not implying that I am a genius but that others don’t know, or care to know, what the law says.
If you can’t tell, I like my new job.
I live and work in Australia and am talking about the Australian taxation system. This may or may not be relevant in other countries. This is not financial advice either. If you are considering salary packaging talk to a qualified financial planner or accountant.
Tom Humes on January 26th, 2009
Nice Site layout for your blog. I am looking forward to reading more from you.
Tom Humes
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