Are you working in education, community service, association and industry groups and sporting clubs and you’re wondering about the benefits of working for a Rebatable employer? Well, we interviewed our General Manager, John Heinke to give you the ins and outs of significant Rebatable taxation reducing benefits.
1. What types of employers are eligible for this type of benefit?
Generally, they are Not-For-Profit (NFP) organisations that are not charitable with their intent. For example, full blown charities such as Blue Care and St Vincent De Paul versus a Private Catholic school or a trade union. Catholic schools are NFP, because their intention is for education so they fall under the Rebatable status. This is a very common mix up, because people assume that just because they are NFP, they are charitable, but that is not always the case. To be NFP, you must have a charitable intention.
2. What does the employer gain by offering these types of benefits back to their staff?
The Rebatable status is halfway between a full charity and full Fringe Benefit Tax (FBT) so the employees for Rebatable organisations can package a certain amount. In doing this, the tax rate is a rebated rate, which means it’s not the full 49%, it’s more like 32%. So for people on an income of over $100k, the Rebatable status as an NFP is advantageous. One of the anomalies is that if you are doing a novated lease, then there is a benefit for you in Salary packaging a motor vehicle through a Rebatable organisation.
3. Do many employers offer these benefits to staff?
Not enough. Mainly they don’t know about it and they don’t understand the impact of it. A lot of companies still think they are responsible for the difference in reduced amount of FBT and the full amount, and they are not. Because of the Rebatable status, the FBT burden is on the employee and that rate is less than their marginal tax rate, therefore, the employee saves anyway.
4. In broad figures how many people are missing out on tax benefits that they are entitled to, yet not taking advantage of it?
That could be a very large number. There would certainly be at least 100,000 people employed by the Catholic education system and so I would suggest that, though many of them might have salary packaging, it’s not in a Rebatable sense; it’s just in a novated sense. We have seen a lot of Rebatable employers using the standard novated leasing Employee Contribution Method (ECM) which is advantageous but not as advantageous as if they were using the Rebatable method. I would suggest that 90% of the Catholic education system would not be using the full benefit, and I would think the figure would be higher amongst other Rebatable organisations.
5. Is this because the Rebatable benefit is a new offering?
No, this benefit has been in place since the FBT laws were formalised in 1986! One of the issues is that companies don’t understand their status and they need to clarify that.
6. Can an employee package multiple items at once or is it restricted to one benefit. For example, could you only package your mortgage payment or could you do a personal loan and your mortgage payment together?
The beautiful thing about Salary Packaging is it is a bit like a wizard and his wand! The package chooses you! If there is a benefit in doing it, we can show you the benefit and do it for you. If there was no benefit, you wouldn’t do it – you’d be crazy to. Under a Rebatable status, you can package up to the limit, which are items that attract full FBT up to $30,000 grossed up value, or approximately $16,000 in actual cash terms. So that means a school principal could put $16,000, not tax-free, but taxed at a reduced amount, toward their mortgage or their rent. Once you’ve got the $16,000 cap amount, you can then do your motor vehicle and you can package exempt items, such as personal expenses i.e. mobile phone.
7. Does this affect the ability to obtain credit for home loans and cars?
It actually improves it. Back in the dark ages of 2000, the bank would not understand it. The bankers would think “Now wait a second, your salary has been reduced by salary packaging so we must assess the reduced amount.” It only took them a couple of years to figure out that a person with an $80,000 salary with salary packaging effectively means they are earning $85,000 and so the borrowing capacity went up accordingly. Now, the banks love it, because it shows 2 things:
1. Your outcome is better in dollar terms and
2. You’re with a secure, recognised employer.
8. How much work is involved in setting up this type of packaging for staff?
No more than other benefits, but because it is a hybrid, it does need people to deliver it on site. You need that interaction to actually work through the differences. I think one of the interesting things that we see is that Rebatable employers just write off the other benefits, as they don’t understand it. For example QLD Education only package motor vehicles and superannuation, whereas Catholic Education, Lutheran schools or NFP schools have all those other benefits available to them. A lot of our competitors don’t offer this benefit as there is no benefit for the Salary Packaging provider. Their thought process is ‘let’s not tell them about it, let’s just sell the cars.’ That’s their strategy but unfortunately, this is one of the biggest problems, no one is educating the Rebatable companies on their status.