Salary Packaging Rental Expenses

[parlayman]

Hello All,

Tried searching this topic but cannot find any (or maybe I'm not searching hard enough ) so here it goes...

I read an article with regards to salary packaging rental expenses here.

Is this totally different from submitting a tax variation form? If you salary package, does it mean you cannot claim your losses from tax for negatively geared IP anymore?

As always, thanks for all the help.

Cheers!

 

[Rob G.]

You mean you are worried you won't be able to deduct property expenses that you didn't actually pay because your employer paid them instead ?

Cheers,

Rob

 

[parlayman]

It's more trying to understand the differences between them. Which way (salary packaging, tax variation or end of year claim) will give me the best tax benefit/cash flow. Or are they all mathematically the same?

Thanks.

 

[Aaron_C]

Salary packaging your rent will be better for you because your employer is paying your rental expenses from pre-tax income (and paying Fringe benefit tax on your behalf). Whereas if you rent privately you are paying from after-tax income.

 

[parlayman]

Sorry Aaron. I think I didn't make my question clear.
When I say salary packaging the rental expenses, they are my expenses on my IP. As per the article:

All rental property expenses (council rates, water, etc) except for depreciation would be able to be salary sacrificed.

Question is, is it pretty much the same (number wise) as doing a tax variation form? Or, also the same as claiming it at one go at the end of financial year?

Apologies if I'm confusing....

 

[Aaron_C]

It should be the same then.

 

[Ed Barton]

what employer is going to pay IP expenses and then pay FBT on them?

 

[Rob G.]

what employer is going to pay IP expenses and then pay FBT on them?

There will not be any FBT liability for the employer with respect to rental expenses that would have been an immediate deduction to the employee.

Cheers,

Rob

 

[Ed Barton]

There will not be any FBT liability for the employer with respect to rental expenses that would have been an immediate deduction to the employee.

Cheers,

Rob

how would the employer know whether they would be deductible to the employee? i have never heard of this, do you have some links to ATO or other sites (i have looked).

if you're correct then the case studies linked in the OP are wrong, and there is no benefit to this strategy.

 

[Aaron_C]

See: http://www.austlii.edu.au/au/legis/cth/consol_act/fbtaa1986312/s24.html

 

[Ed Barton]

See: http://www.austlii.edu.au/au/legis/cth/consol_act/fbtaa1986312/s24.html

Thanks Aaron.

i guess i hadn't heard of it because there is no benefit to anyone, so nobody does it?

in the op's link it speaks of a couple with 50/50 ownership but low/high incomes. the high income earner pays all the expenses through salary sacrificing so as a couple they are ahead by doing it this way. the scheme could not be used as suggested because the high income earner is not entitled to all the deductions. is this correct?

 

[Aaron_C]

It might mean that the employer would have to pay FBT on the 50% that the high income earner isn't entitled to. Which, like you said, beckons the question of who would do that?

 

[Rob G.]

The otherwise deductible rule no longer applies to an associate's joint interest.

You forget that there might be GST benefits where expenses are paid by an employer in furtherance of their enterprise that might be passed on, as opposed to an employee having 100% input taxed supplies.

And don't forget on-costs saved by your employer such as lower payroll tax that might be passed on by the employer.

It depends how flexible the employer is as to what is able to be packaged and what savings may be passed on.

Cheers,

Rob

 

[parlayman]

Sounds like to better stick with tax variation....

 

[Eternal_learner]

Sacrificing Investment Interest

My employer only allows Investment property interest to be packaged which does not incur any GST so no real benefit there. As Rob has said the rules changed and you now also can't benefit from the previous joint ownership structure in the link the OP was referring to. The only benefit of salary sacrifice over ITWV I can see is if it brings you into a lower income threshold for Family Tax Benefits.

For FTB you need to add back any property losses for your "adjusted taxable income".
Because the interest comes out pre tax and you therefore cannot claim it again on your tax return your property would rarely be left negatively geared (well you'd hope not!!). This means you have no rental losses to add back on. Depending on your income and how many kids you have, it may just make a difference to Family tax A. payments

For example

Income $80k
Rent +$15k
Interest -$20k
Remaining expenses -$ 2k
Depreciation allowance-$ 6k


Adjusted Taxable income = Taxable income of $67k + the $13k property loss so back to $80k

If the Interest is packaged then Adjusted Taxable income is $60k ($80k-$20k) + $15k -2k -6k = $67k

As you can see this makes no difference to your taxable income, however does impact your adjusted taxable income.

You might even be able to combine this with a Salary sacrificed car to bring this even further down using the method noted in the Reducing Reportable Fringe Benefits article in http://www.bantacs.com.au/newsflash/Newsflash_235_15th-October-2011.pdf. This would impact both Taxable and adjusted taxable incomes.

 

[Mry]

I like salary packaging rental expenses since

* Easier to qualify for family tax benefits (as Eternal Learner mentioned)
* Better cash flow without having to lodge a PAYG Variation, and
* GST benefits

Julia Hartman from BANTACS had a salary sacrifice package kit for jointly held properties which helped employers salary package joint rental expenses and sacrifice them 100% in the name of the highest income earner. In fact, she wrote a book with Noel Whittacker which also discussed the strategy. Unfortunately, the government changed the rules about a week before publication after the books had been printed.

 

[pennyk]

what employer is going to pay IP expenses and then pay FBT on them?

When I used to work for a not for profit organisation, (many years ago!) we could have take up to 30% of our salary as "packaging". I think their tax situation meant they didnt pay fringe benefits tax. So it was a way of attracting management to work for the organistion without having to pay such high salaries.
But I dont know if that is still relevant, or whether you can claim IP's on it.

 

[Aaron_C]

There are companies which specialise in salary packaging for employees of exempt-FBT entities. How does it actually physically work penny? What fringe benefit would the employer provide to the employee? Do they pay for your rent etc instead of a higher salary?

 

[pennyk]

There are companies which specialise in salary packaging for employees of exempt-FBT entities. How does it actually physically work penny? What fringe benefit would the employer provide to the employee? Do they pay for your rent etc instead of a higher salary?

When I did it, it was up to 30%, as I said, and you could use it for anything... rent/mortgage/electricity bills... I cant remember too many of the details of how it was actually paid.... it was nearly 20 years ago! but they directly paid those bills that you wanted to be packaged. (I remember there were some issues, when they were late paying for some reason! )

But it essentially meant that while your gross package was the same, 30% of your income was tax free through the packaging, so effectively a higher net income. I think some NFP's use a much higher packaging amount than 30%... I dont know if there is a limit.

 

[Aaron_C]

I see. I've had clients with that situation before as they work for charities etc. Seems like a good deal.