Most employers would not be averse to helping their employees save on the tax they pay, especially if in doing so it was relatively cost neutral to their businesses. This is exactly what the recently introduced salary sacrifice public transport allowance permits.
Under this remit, employees voluntarily give up some of their pre-tax income to cover their public transport costs. In essence they sacrifice some income to receive compensation in the form of payment of public transport costs. Ultimately, this helps employees save on their transport expenses as well as saving on the tax they pay.
Example
Take Sarah for instance. She earns $80,000 per annum and pays tax on that income of circa $16,277.00. If Sarah chooses to salary sacrifice $2,000 of her salary to pay her public transport costs, she will save approximately $657 per annum in tax. Sarah will still be receiving a total remuneration package of $80,000 per annum but the $2,000 she sacrifices will be tax exempt.
Whilst employers can provide this arrangement without incurring fringe benefit tax, there are some costs involved. For example, employers must pay a $50 annual card fee and a payment processing fee, but these costs are minimal. Furthermore, employers will receive a GST benefit per employee who take up the subsidy from the expenditure they incur for the cost of the public transport card purchased.
For the subsidy to apply, the fare must be on public transport eg: bus, rail, ferry or cable car. Additionally, the fare must be incurred by the employee mainly for the purposes of travelling between their home and place of work.
To prevent fringe benefit tax from inadvertently arising, employers are recommended to put in measures to ensure the subsidized fares aren’t being used for private travel. This need not be arduous. A simple declaration from an employee to the effect that they will only use the fare for travel from home to work and vice versa should suffice.
In totality, this is a nice way for employers to provide a benefit to employees whilst avoiding fringe benefit tax that negatively affects cashflow.
If you want to know more about the system, contact your Advisor at Greenlion who can explain the scheme in greater detail.
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