Family Tax Benefits & Salary Packaging

How does Salary Packaging affect me if I receive Family Tax Benefits?

If you are salary packaging with your employer and you are receiving any benefits from Centrelink it is important that you let Centrelink know that you are receiving fringe benefits and the amount you are receiving.

If you do not tell Centrelink that you are receiving fringe benefits, you may end up in the position where you need to pay Centrelink back after lodging your annual Income Tax Return.

 

EXAMPLE:  Dennis has an annual Gross income of $35,000 and is currently receiving Family Tax Benefits from Centrelink. Dennis is employed by a Health Promotion Charity and is currently salary packaging rent payments to the value of $15,899 through his employer.

 To calculate Dennis’ Income for Family Tax Benefit entitlements Centrelink will do the following:


Note: The Reportable Fringe Benefit Amount (RFBA) is calculated by multiplying the amount of salary sacrificed Rent Payments by 1.8868 (i.e. $15,899 x 1.8868) as per the ATO’s formula.

 

How will Dennis’ Family Tax Benefit payments be affected?

Dennis’ RFBA of $30,000 as above is discounted back to the cash figure $15,899 in determining Dennis’ Adjusted Taxable Income for Family Assistance Purposes. Thus Dennis’s entitlements from Centrelink will not change as a result of Salary Packaging.

Dennis must declare his taxable income of $19,101 PLUS his Reportable Fringe Benefit Amount of $30,000.

A common mistake that is made is only declaring to Centrelink the cash component of your package (e.g. $19,101 in the above example) and not telling Centrelink that you have also received a Reportable Fringe Benefit Amount of $30,000.  This can lead to the overpayment of your Centrelink benefits as a result of you understating your income and subsequently you must pay some of your overpaid amounts back.

 

DISCLAIMER: This information is designed to assist you to understand the implicationsof salary packaging, however it is not to replace appropriate and individualised financial advice.  Community Salary Packaging takes no responsibility for the way you apply this information to your personal circumstances.