Not for profits play an integral role in our community. In recognition of the contribution made by the charity sector, the government provides extra tax benefits to their employees, by allowing a greater tax savings and salary packaging. This is known as “fringe benefits.”
Under section 57A Fringe Benefits Tax Assessment Act 1986 a charity that is registered with the ACNC as either a Health Promotion Charity, Public Benevolent Institution (PBI) or Religious Institution are eligible for Fringe Benefit Tax (FBT) exemptions, generally capped at $30,000.
What is a PBI?
A PBI is a non-profit organisation which is established and operates to provide benevolent relief directly to those in need through the relief of poverty, sickness, suffering, distress, misfortune, destitution or helplessness. A PBI is distinct from a not-for-profit organisation or a charitable institution EG: community group, club etc.
What is Fringe Benefits Tax (FBT)?
A PBI or a health promotion charity can provide fringe benefits to its employees free of FBT if the grossed-up taxable value of fringe benefits does not exceed $30,000 per employee.
Once this ‘FBT Exempt Concession Cap’ threshold is exceeded, these employees pay the full applicable rate of FBT on all additionally packaged benefits.
So what counts for a fringe benefit?
Employees can ask their employer to pay the following:
• Own home mortgage repayments
• Private home rental payments
• Personal loan repayments
• Investment loan repayments(e.g. real estate property for non-commercial purposes) –although as this would be tax deductable against the rent received it may not be worthwhile.
• School and higher education fees including HELP repayments
• Household rates
• Private health insurance premiums
• Child care fees
• Aged and Disability care payments
• Personal investments through a registered managed trust or fund
• Credit card repayments (note: employees must seek financial advice in order to package this item – a waiver cannot be obtained)
• Payments to an Employee Benefits card
The FBT regime can be complex, and we recommend organisations seek advice about salary packaging, where they are required to pay FBT and where exemptions may apply.
We spoke to Peter Hersh, a director of the Sydney firm of Logicca Chartered Accountants a specialist in the not for profit sector. He explained, “With careful planning, fringe benefit tax can provide your charity with extra funds which they can use to attract the best staff.”
Exemptions on top of the FBT capping.
There are certain benefits that are deemed “excluded benefits for reporting purposes”, that will not affect an employee’s capping threshold and is not required to be grossed-up and disclosed on the recipient’s payment summary. “These exempt categories are an excellent way to increase employees take home wages” said Mr Hersh.
These exempt benefits include meal, entertainment and car parking fringe benefits. Please note that from 1 April next year meal and entertainment benefits will be limited to a grossed up amount of $5,000 per employee and will be reportable.
So what’s next?
Many not for profit organisations tell us that they don’t have the funding to spend money on not for profit lawyers or specialist accountants who understand this area. We understand that this can be an expensive journey for charities, but the savings in getting it right in the first instance can really make a positive impact and will reward those who work so hard for the benefit of our community.
Managing Partner of Warlows Legal Harriet Warlow-Shill has announced that in December 2015 Warlows Legal will be providing free 30 minute “health checks” to not for profit organisations to ensure that their legal structures and entitlements are achieving optimal outcomes.
To book your appointment call 03 8554 3800 or email firstname.lastname@example.org