Salary Sacrifice income to pay interest on investment loans

Many of you would know of, or have access to schemes that allow you to sacrifice part of your salary into such things as Super, motor vehicles, airline membership, childcare, laptop computers etc. My employer allows me to sacrifice into all of these things, but I was recently looking into other things that you may be able to salary sacrifice into. One of these was salary sacrificing to pay off interest on investment loans.

At first, I thought this sounded fantastic. Pay for interest on investment loans from pre-tax salary, thus reducing tax paid on salary. However, on thinking the issue through a bit, I wondered whether simply claiming the interest paid as a deduction, either at the end of the FY or throughout the year via s221D, had exactly the same effect as Salary Sacrificing to pay or pre-pay interest from pre tax salary.

Now I'm not so sure. Surely if you salaray sacrifice to pay for interest on an investment, you can't then claim that interest paid as a deduction come tax time.

Any thoughts from the floor?

Pierre
 
Hi,

Good thought, about what you really want to consider is, can you have your PPOR salary sacrificed, as you say your investments are deductable, what you want is someway to affect the non-deductable ones.

That would be one flexible workplace if you could :)

One idea that I heard once, was "staying away from home allowance", I spose if a property was to be purchased in some sort of structure, then this allowance could be paid as rent to live in this house?

What if a house was purchased in your name then wrapped to your super, then you sal-sac super to your dyi-fund, the fund then uses this to make installment payments to you and you a) make payments to the mortgage, and b) make rent payments back to the property to live in it.

Dale???

Michael G
 
Originally posted by michaelg
Hi,

Good thought, about what you really want to consider is, can you have your PPOR salary sacrificed, as you say your investments are deductable, what you want is someway to affect the non-deductable ones.

That would be one flexible workplace if you could :)

One idea that I heard once, was "staying away from home allowance", I spose if a property was to be purchased in some sort of structure, then this allowance could be paid as rent to live in this house?

What if a house was purchased in your name then wrapped to your super, then you sal-sac super to your dyi-fund, the fund then uses this to make installment payments to you and you a) make payments to the mortgage, and b) make rent payments back to the property to live in it.
Dale???
Michael G
HIya Michael!

You've not been taking your medication again, have you?:)

The first problem with your scenario is that it is illegal for a self managed super fund to acquire assets from one of the members.

The salary sacrifice rules are off, but, if you work in a hospital or for a charity, you can actually salary sacrifice your mortgage repayments from before tax tax dollars.

Have fun

Dale
 
Originally posted by DaleGG

The salary sacrifice rules are off, but, if you work in a hospital or for a charity, you can actually salary sacrifice your mortgage repayments from before tax tax dollars.

Hi Dale,

Trust you and Mrs Dale are well..

Are charities difficult to establish, register, comply etc?

Regards,

Duncan.
 
I can't believe no-one has mentioned fringe-benefits tax here at all?

Dale - my figures may be wrong and I'd be delighted if you confirm...

Last time I looked into Salary Sacrificing arrangements you end up paying FBT on most Sal Sac situations, Superannuation and Notebook computers (which I know for a fact).

So, consider $1000 paid in interest as Sal Sac, assuming top marginal personal income tax rate of 48.5%. That $1000 has cost you $1941 in "gross" income. Obviously to pay that same $1000 in interest as Sal Sac would cost $1000 in gross income.

If you didn't Sal Sac, come tax time, you claim $1000 tax deduction for the interest, and get back $485 say.

If you Sal Sac, come FBT time, you will cop an FBT bill for approximately $485 (I think). FBT calcs are a little involved, and I didn't want to fully do the math.

So, if you don't Sal Sac it has cost you $1941-$485 = $1456.

If you do Sal Sac, it has cost you $1000 + $485 = $1485.

Given that my FBT amount is probably a little off, I'm basically saying you'll end up paying the same.

But here's something to consider:

As far as I know, it appears an employer DOES NOT have to pay SGC (Superannuation Guarantee Charge) on that portion of your income which you have salary sacrificed away. So, you can actually end up losing your 9% superannuation entitlement on the amount you have salary sacrificed.

The best idea I have had to make use of Salary Sacrifice is to:

1. Buy 1 Decent Notebook computer every year Sal Sac.
2. Sell it privately.

Even if you take a 20% drop on the purchase price, you have still made a profit. Keep in mind when you buy a notebook, the employer pays the GST and claims as an ITC. So you essentially get the notebook both tax-free and GST-free.

Example: $5000 notebook costs you $4545 gross income, because your employer claims the GST. You see the notebook for 20% below market ($4000).

If you took the $5K as salary you would have lost 48.5% as tax, on highest tax bracket. Buying the notebook you lose $545 out of $4545, or only 12%.

Whether it's legal or not - that's another question (and I highly doubt it is - the ATO would probably call this "a scheme whose predominant purpose is to avoid paying tax").
 
Originally posted by Kevmeister
I can't believe no-one has mentioned fringe-benefits tax here at all?
Arent charities exempt from Fringe Benefits Tax? or was it Priests in religions etc?

Regards,

Pastor Duncan.
Church of the Holy Capitalist Pig.
Services.. 9am Sunday.. Commonwealth Bank ATM's.
 

Sim

Administrator
Yes, there are certain organisations which are exempt from FBT - for example my wife (a nurse at a public hospital) is allowed to package a whole heap of stuff as salary sacrifice, including rent or mortgage repayments (!!!) up to a grossed up value of $17Kpa. Nice !

The rest of us mere mortals are restricted to the exempt things - such as some types of car leases and things like laptops.
 
A friend of mine has a partner who works in a hospital and I believe the FBT exemption limit used to be much higher.

And whilst I cannot authenticate this, I heard a lot of doctors got really crapped off when they capped the FBT down to $17K. Apparently some were salary sacrificing most of their income.

I guess though it reflects the fact that us "mere mortals" outside these types of institutions are usually earning better money, so the FBT is a kind of compensation?
 

Sim

Administrator
Yes that is my understanding too - it used to be pretty much unlimited - doctors could salary sacrifice their entire lives ! Some excuse about retaining doctors in the public hospital system or something. Not sure of the details - I only know about it based on some comments made by my accountant in passing yesterday when I was talking to him about this very subject !
 
Hiya Duncan!

We are well, and thank you for asking. You?

I am not sure abt the costs of establishing or maintaining a charity these days . . . I have very little involvement with such a noble pursuit:D

Sorry

Dale
 
Originally posted by Kevmeister
I can't believe no-one has mentioned fringe-benefits tax here at all?

Dale - my figures may be wrong and I'd be delighted if you confirm...

Last time I looked into Salary Sacrificing arrangements you end up paying FBT on most Sal Sac situations, Superannuation and Notebook computers (which I know for a fact).

Your statements on FBT payable on Salary Sacrificing are not 100% correct. Some things that you can sacrifice income into attract FBT at the full rate (Private Health insurance is one), some attract FBT at concessional rates (Motor vehicles depending on the number of km travelled per annaum), and some attract no FBT at all. The items that attract no FBT are the really good ones, and include airline membership, laptops, interest on investment loans, childcare, parking and a whole bunch of other things.

There is a load of information available on the web about what sort of benefits attract FBT and what don't. Here's one example:

https://www.smartsalary.com.au/default.asp?Type=Page&Name=PackageWhatGeneric

A good source of information is straight from the ATO Website. Try looking through this stuff ...

http://www.ato.gov.au/content.asp?doc=/content/businesses/24632.htm

FBT aside, I'm still not quite across the issue I originally raised. If I sacrifice salary into paying off interest on investment loans, and that benefit is not subject to FBT (which it is not), then am I any better off than simply claiming the interest payments as a tax deduction either at the end of FY or throughout the FY under s221D?
 
Hi Pierre,

My husband looked at this issue himself recently, and as far as we could ascertain there is no benefit either way. That is, the result is the same financially, no matter which way you go. Different paths to the same result.

Could someone please tell me why doctors/nurses are allowed this amazing benefit (salary sacraficing home mortagage repayments/rent), whereas the rest of us cannot? Why not, for instance, teachers - the govt seems to be in short supply of them at the moment? Just curious.

Lily
 
Originally posted by Lily House
Could someone please tell me why doctors/nurses are allowed this amazing benefit (salary sacraficing home mortagage repayments/rent), whereas the rest of us cannot? Why not, for instance, teachers - the govt seems to be in short supply of them at the moment? Just curious.

Lily
Hi Lily

The official version is that the Doctor in private practice can earn a great deal more than one who works for a hospital. So, this option allows the hospital to compete with attracting and keeping doctors by being able to pay them what is effectively a "before tax" component to their salary.

Tax is not fair and never will be.

Dale
 
Pierre,

Lily is correct.

Because the interest on the investment loan would be otherwise deductible to you, no FBT is incurred if you salary sacrifice. So whether you choose to not salary sacrifice and earn $1,000 and subsequently claim a tax deduction of $1,000, or whether you agree with your employer to salary sacrifice $1,000 and therefore forgo claiming a tax deduction, your after tax position is the same.
 
Hi Piere,

The SmartSalary URL is good... but a quick note on the GST side of things... I work for a Uni & we don't pay GST for the Operating lease & we also pay FBT based on the pre-GST car price (which is discounted under fleet discount)... As already mentioned, Super/Gym/Parking/Notebook don't attract FBT...

I also looked at whether it is worth packaging investment loans, but as indicated in an earlier post it makes no difference, if anything it costs you more as the organisation handling the salary sacrafice charge a percentage... so worth just claiming IP interest through the standard means...

Cheers,

MannyB.
 
Thanks for your response Dale,

You sure are right about tax being unfair!

I'm jealous - particularly those doctors who work in hospitals and private practices - the best of both worlds!

I'll be letting my nurse friend know about this. I would assume most nurses work in hospitals so don't follow the reasoning here. Don't know why I'm whining - it's not like I can change anything.:)

Lily
 
Lily,

You're right about not whining, but wrong about not be able to change anything.

You can change what YOU do. After all, that's why we're all here.

:D

Bob
 
You can salary sacrafice PPOR (and not pay FBT) if you live in a remote location and fulfill a number of other conditions. My workplace is currently looking into it and hopefully something will come from it.
 
Very interested

Hi Bear924,
do you know what any of the conditions are yet? I am very interested since I didn't think there was a way to do this.
ta

Bear924 said:
You can salary sacrafice PPOR (and not pay FBT) if you live in a remote location and fulfill a number of other conditions. My workplace is currently looking into it and hopefully something will come from it.
 
Hi,

I take it that if you do sal-sac interest payments on an investment loan, then you would still claim all expenses against the rent except the loan payments?

This would then make your rental property worksheet appear that it is highly cashflow positive? (I know for us that interest payments account for most of our properties expenses!)

One thing that would interest me, is the child support angle of this. Currently any negative gearing is added back on your taxable income to calculate your income for child support but in this scenario your rental property is cashflow positive and not negatively geared. ??!?! Also CSA add any FBT back onto your taxable income but because there is no FBT on sal-sac investment loans this wouldn't be added back on. ???

Any thoughts?

Peter
 
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