The digital age is evolving, which means that technology such as laptops, tablets and mobile phones can be carried everywhere. Common items your employees use in their everyday life. As a result, work can be completed nearly anywhere in the world, including remote areas.
These devices are usually owned / purchased by the employee as not all employers can afford to outlay thousands of dollars on such technology, therefore having a salary sacrificing arrangement can be beneficial to both the employer and employee.
What is an Electronic Portable Device?
An electronic portable device, according to the Australian Taxation Office (ATO), are items that are easily portable, small and light, operate without external power supply and is designed as a complete unit. These include items such as a laptop, tablet, GPS navigation system, personal digital assistants and mobile phone. They can be carried to different locations without the need to set them up.
What is the purpose of Salary Sacrifice Arrangements?
The purpose of a Salary Sacrifice Arrangement is for the employer to reimburse the employee for the GST inclusive cost of purchasing a portable electronic device. By doing this, the employee agrees to forgo an amount from their salary which is equal to the purchase price of the portable electronic device plus any fringe benefits tax liability associated with the benefits provided, less any input tax credits that can be claimed by the employer for the electronic portable device. Sounds like a mouthful?
For example, your employee wants to purchase the latest Apple iPad with accessories, which has a total cost of $2,081, including $189.18 of GST. Below we explore the salary sacrifice arrangement and determine if there is in fact a benefit for both the employer and employee.
What are the Fringe Benefit Tax (FBT) considerations?
According to the ATO, an employee can salary sacrifice more than one electronic portable device per fringe benefit tax year, and it will be exempt from fringe benefit tax for the employer. However, these electronic portable devices must be different, hence an employee would be unable to salary sacrifice two laptops or two mobile phones during the same fringe benefit tax year. The ability to salary sacrifice more than one electronic portable device per fringe benefit tax year is available to small business entities with aggregate turnover of less than $10m. For a portable electronic device to be exempt it must be one of the items mentioned above and used primarily for work-related use (Google FBTAA 1986 S58X).
In addition, the employer does not need to report it as a fringe benefit and there is no fringe benefit tax to pay on it.
Can an Employer Claim a Deduction for a salary sacrifice arrangement on electronic portable devices?
As an employer, a deduction can be claimed, and in addition, the GST credit can also be claimed on the device. Using the purchase of the Apple iPad Pro, the employee’s pre-tax salary is reduced by the net amount, being $1,891.80, therefore the net affect of this is the employer will be better off by the GST credits of $189.18.
The employee, though, will not be able to claim the device in their tax return, however they may end up having more disposable income in their hands (refer below)
What other Benefits are there for the Employer (and employee)
- The employee saves GST on the device, being the $189.18, and the employer will claim back the GST of $189.18.
- The employee’s gross salary is reduced, therefore reducing their PAYG Withholding and reducing the amount of tax they will need to pay.
- It is attractive for employees to enter into the arrangement, which may help increase retention rates.
- Your employees may have the flexibility to work from different locations.
How does it Benefit the Employee?
Using the example of purchasing the Apple iPad Pro, the comparison of salary sacrificing vs not salary sacrificing can be seen as follows:
|No Salary Sacrifice||Salary Sacrifice|
Salary Sacrifice Amount
Add: Input Tax Credits
Less: Tax on Income
Add: Medicare Levy
After Tax Income
Less: iPad Pro
Disposable Income Benefit
The example above results in the employee having an additional $842 of disposable income available to them. Hence, it is an attractive arrangement for them to undertake.
Therefore, as an employer it may be beneficial to provide employees with electronic portable devices. This will not only assist by allowing work to be performed at different locations, but it will also allow employees to be up to date with technology and increase their disposable income.
About the Author
Anthony Cerra – Assistant Manager, Rogerson Kenny Business Accountants.
Anthony started his career in the accounting industry in 2012, after spending a few years as a teacher. He is currently an Assistant Manager and is CA qualified. Anthony is very passionate about educating the next generation of accountants and believes learning is never-ending. He also enjoys interacting with clients and takes every opportunity to provide advice to educate and grow businesses.
Article created, September 2019
It is important to note that fringe benefit tax is a complex area, therefore we advise you seek appropriate taxation advice before making any decisions based on this article or contact Rogerson Kenny Business Accountants so they can assist you with any fringe benefit tax enquiries.
If you would like to discuss this topic further, please contact Rogerson Kenny Business Accountants on (03) 9802 2533.