Salary Sacrifice

Good evening,

I am about to embark on my first IP and have been lurking around this site for months devouring every snippet of info.

Have got pre-approval sorted and am chomping at the bit.

I was made aware last week that I am able to Salary Sacrifice 50% of my wages into the loan account which will service my IP. Have made contact with the SS company and they have set the account up already - just need details of the loan account to set the ball rolling.

Question......surely there will be some fly in the ointment.

I cannot believe the taxman will allow me to use a large bulk of my wages tax free to fund the IP and then let me offset the interest payments at the other end.

Answers on a postcard please.
 
That's why there is Fringe Benefit Taxes. I'm not an expert on FBT, but my understanding is that the employer has to pay tax on providing you the benefit.
 
You can't "double dip". If you salary sacrifice the interest payments, then you can't claim them again off your tax.
Marg


Are you sure of this? It doesn't make sense to me. The interest is an expense incurred in producing assessable income. Surely it doesn't matter who pays the interest, but rather who the interest is being billed to.
 
I assumed it was double dipping.........why do you think it is listed as one of the SS options?

A visit to the accountant appears on the cards before adding signature!!
 
50% of your wages as salary sacrifice? Interest on the IP would not be subject to FBT under the otherwise deductible provisions. If you are paying principal off through salary sacrifice there will be limits and it is priobably not worth doing unless your employer is concessional or rebateable
 
Come on boys and girls.....treat me gently.......like I said....first IP.

Concessionary.....rebatable.....?

I promise I will not take offence if you treat me like a doughnut.
 
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What they mean to ask is your employer a registered charity or has "concessional" treatment? If so, there is favourable treatment for salary sacrificing.

You should probably speak to your accountant.

Regards,

Jason
 
There is some benefit of doing this at some employers.

For example, if you are paid $85 per year gross before tax salary, the cost to the company may be $100 or so (when super, payroll taxes, etc... are added in).

Some employers (and in some states) let you salary sacrifice the $100 amount to pay of investment loan interest.

You therefore dont get leakage to super, and in some cases, payroll tax etc..

As the interest would be "otherwise deductible" there is no double dipping.

The catch is your rents from teh IP are still assessable and you will have a tax bill come year end on those.
 
Don't do it:

At best you will be in the same tax position as if you had paid the interest yourself.

If you are working for a PBI or pulbic hospital then the special concessions available to their employees will be wasteD on this stategy, exempt fringe benefits should be used to pay off your own mortgage or credit card

If the loan also has your spouse's name on it and you embark on the salary sacrifice road then you may be caught up in whatever changes they end up making to the FBT law as announced in the 2008 budget but still not a draft in sight!

Worst case scenario is your employer pays FBT on the repayments at the maximum tax rate and you lose deduction for the interest on those repayments

SHort answer dont do it!
 
Check the fine print on the SS company you are signing up with. Mortgages are subject to fringe benefit tax and so you can only do so much before you have to pay FBT on it, which is something you would not want to do with an IP. If you SS your IP then you could not go again and claim those same expenses at tax time, it is one or the other, well at least that is how mine works.

Now that you have realised that you can SS, go for it, it does depend on your tax bracket, work it to your advantage. It is the best thing since sliced bread if you are able to do it.

Think I would rather SS other things and leave IP for tax, think it works more to you advantage that way, but you would need to check it all out as others have previously mentioned.
 
Like Julia says ... check your numbers.

Unless there is a significant GST benefit being passed on to you by your employer, it may not make sense to salary sacrifice otherwise deductible expenditure.

*AND* capital expenses are not otherwise deductible, so your employer will be hit for FBT on initial repairs, improvements, fixtures, etc. at 46.5% ... what is your personal marginal tax rate ????

Cheers,

Rob
 
Thanks for all of your replies.

Like I said at the start......bit of a novice.

Work for a govt agency and the SS agreement in place specifies that IP loans are one of the options available.

One of the guys in the office has been SS'ing into a IP loan account for the last three years and swears by it. When I brought your replies to his attention, he stated that his accountant sorts it all out for him. He is still of the belief that he gets the tax benefits both ends.

I have noted the contact details for a couple of accountants on this site and will make further contact with them before putting pen to paper.

Cheers
 
Thanks for all of your replies.

Like I said at the start......bit of a novice.

Work for a govt agency and the SS agreement in place specifies that IP loans are one of the options available.

One of the guys in the office has been SS'ing into a IP loan account for the last three years and swears by it. When I brought your replies to his attention, he stated that his accountant sorts it all out for him. He is still of the belief that he gets the tax benefits both ends.

I have noted the contact details for a couple of accountants on this site and will make further contact with them before putting pen to paper.

Cheers

If your 'govt agency' qualifies as a PBI - public beneficience institution or similar - you may be eligible for special exemptions from FBT -fringe benefits tax. Certain PBIs are eligible for exemptions on a 'grossed up' amount of a) $17000, others b) $30000. The net effect of this is you can divert either a bit less than a) $9000 or b) $16000 of salary BEFORE tax into expenses. There is no real benefit in diverting this income into expenses you can claim a deduction on anyway (ok, technically there are a couple obscure reasons you may want to do this, but these pale into insignificance compared to using it to pay personal expenses).

You CAN use it to pay off an IP loan, but since a large chunk of that will be deductible anyway, you are much better off using it to pay off your personal mortgage or rent.

The guy at work who reckons he's 'getting it at both ends' is either mistaken, misquoting or otherwise. Realistically, you can claim whatever you want in your tax return - just need to be comfortable/confident that your calim is defensible should the ATO ever come knocking...I would suggest that if he was audited and he is trying to claim expenses already salary sacrificed, he may end up truly getting it at both ends...
 
Are you talking about a salary sacrificing arrangement or salary packaging through your employer?

I also work for the Government and am able to salary package the interest payments on our PPOR, but not for IP's.
 
I believe that if youre in employment i.e. youth pastors, they get a special deal with being able to sal sac @50% as nontaxed.

Good for anyone who can get away with it
 
Hey Kil,

I'm no expert, but here it is

SS represents a part of your income you dont pay income tax on. Therfor you cant use that portion of your income at tax time to represent what you did pay tax on. ie You cant double dip as Marg suggested.

You either set it up with your employer so you dont pay tax on that part of your income or you dont and just get the tax 'overcharge' back at tax time.

Think SS really doesnt mean something for nothing.
 
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