One of my employees has requested to salary package her children's school fees. Am I allowed to salary package school fees? Would fringe benefits tax apply?
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Generally, you can provide benefits such as school fees as part of a salary package for your employees; although you will need to consider the fringe benefits tax (FBT) implications.
A salary package is usually an agreement where part of the salary your employee would have received, is replaced with some kind of non-cash benefit.
FBT is a tax paid by an employer on any non-cash benefits provided to an employee.
There are several different types of FBT. When you pay or reimburse an employee for expenses such as loan repayments, childcare costs or school fees, the payment falls under the category of expense payment fringe benefits.
The taxable amount of the expense payment fringe benefit is the amount of the cost you will pay for the non-cash benefit; in your case, the school fees.
If there is any FBT payable on the school fees, you may be liable to pay that tax and are required to lodge an FBT return.
You may also need to report certain benefits on your employee's payment summary.
However, as part of your salary sacrifice agreement, you may include the amount of FBT payable by you in the total salary package of your employee.
From your employee's perspective, a salary package will not change the value of their total salary package, it will only change the nature it is received.
In addition, income tax will only be paid on the portion of salary that is not a fringe benefit. If the school fees are under $300, no FBT is payable.
If you do have any FBT payable, this can be reduced by any amounts you pay for your employee that would have been tax deductible by them.
If you are uncertain about the application of the above rules to your business, you should seek clarity from your tax adviser or contact the Findex team at albury@findex.com.au.
While all reasonable care is taken in the preparation of this article, to the extent allowed by legislation Findex (Aust) Pty Ltd ABN 84 006 466 351 (Findex) accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Findex assumes no obligation to update this material after it has been issued. You should seek professional advice before acting on any material.
