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Salary Packaging - Offset Account

Discussion in 'Accounting & Tax' started by Greyghost, 16th Jun, 2016.

  1. Greyghost

    Greyghost Well-Known Member

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    Hi All,
    Looking for advice from other Accountants on the forum on Salary Packaging home loan repayments.
    I saw a few ATO docs and also this link to Somersoft;
    Salary packaging with an offset mortgage??

    Scenario:
    Mrs works for Public Hospital.
    Entitled to Salary Package $9010.
    Wishes to package home loan repayments to the maximum amount above.
    Home loan relates to PPR home loan (not investment).

    See point #6:
    http://doc.maxxia.com.au/Document/maxxia/Salary_Packaging_Amendment_Form.pdf
    Basically states payments cannot be made to offset facility.

    What they are trying to do is for the funds to hit the mortgage directly, so if they were to be drawn again it would be directly from redraw on the loan....

    Maxxis state that salary package $346 per fortnight can be paid to the account that the mortgage payments are made from.
    They did not say where mortgage payments are "drawn from".
    They do not ask for the "mortgage" account for the funds to be paid to, a transaction account (nothing to do with property), such as where her normal pay goes is fine.

    So for example if:
    1. Salary paid to her everyday transaction account per $3,000 fortnight
    2. Salary package paid to her everyday transaction account $346 per fortnight
    3. Equals total pool of funds of $3,346 per fortnight
    4. Then $800 per fortnight transferred to offset account from everyday transaction account.

    If Maxxis allow this then I guess the issue would be tainted funds and deductibility issues.

    Can someone lay down the law to me on this please?

    Are there any members here currently doing anything like this?

    Is the rules and regulations around this still quite lax and not being enforced?

    She has done Sal Pack before - entertainment cards etc, but unless you are 100% on top of them they just contribute to more consumerism....

    Just thought if we could get another $60 per week into the mortgage it would be great.

    I don't profess to be a Salary Packaging expert by any means so please go easy...

    Thanks in advance

    GG
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I am not an accountant, but will respond anyway!

    The interest on the loan isn't deductible so no tax issues concerning deductibility of interest would arise unless the loan was later deductible(if property rented etc).
     
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  3. Greyghost

    Greyghost Well-Known Member

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    Thanks Terry.
    That was also my thoughts.
     
  4. samiam

    samiam Well-Known Member

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    you can salary package almost everything (including credit payments) not just ppor mortgage. only for non-deductible though (terry already pointed out). simple way is to pay to your everyday transaction account. you might be interested to "press" the package (10 payments instead of 26 payments) as package is per contract, not necessarily per year (good for ppl on temporary contract or working at different sites, etc), money in hand is better than in pipeline?
     
  5. Rob G

    Rob G Well-Known Member

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    Not read your links ... but

    Merely crediting your offset account for your discretion would likely be simply salary and wages. Assessable income to you.

    Paying your accrued mortgage interest would be an expense payment fringe benefit. Not assessable to you, possible FBT to the employer.

    Two very different tax outcomes.
     
  6. Bullion Baron

    Bullion Baron Well-Known Member

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    Could you pay into a credit card which has a neutral/positive cash balance and then transfer from that to the offset account?
     
  7. Rob G

    Rob G Well-Known Member

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    Probably not. It still seems like a provision of money for your discretionary expenditure.

    Paying down your balance would be an expense payment benefit, i.e. discharging an employee obligation.

    If you could vouch for the particular expense that was originally paid using the credit card then the employer could be entitled to a GST input tax credit (assuming not input taxed) and give you further savings off your sacrificed salary. But merely having an agreement to pay a credit card balance from time to time would not by itself be enough for GST.
     
  8. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Can you not have the $346 going directly into the loan account and then just reduce your regular loan repayments (which presumably are direct debited from your offset account) by $346 per fortnight?
     
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  9. Bayview

    Bayview Well-Known Member

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    My wife is a nurse and gets part of her (2nd job) Salary Packaging paid into a CC - there is no choice in this - it is how the SP company structure it.

    There isn't any way to do any transfers from that card...only direct spending. We use ours for all day-to-day and housekeeping, utility bills, school fees, etc.

    Not sure if any other companies structured this way allow CC transfers though.

    We get my wife's (1st Job) SP paid into a normal every day account, and then it is transferred to the Offset from there. Our Offset is against our PPoR loan - but because it is currently used as an IP (has a tenant) the interest paid on the loan is deductible...

    I think as long as the Offset is not attached to a loan for investment with tax deductibility, it is ok.
     
    Last edited: 19th Jun, 2016
  10. Rob G

    Rob G Well-Known Member

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    The card appears set up exclusively in anticipation of covering your expenditure.

    An employer paying an employee's debt or else reimbursing the employee for their own expense is a fringe benefit. Alternatively, an employer making a credit card available for the employee's private use is also a fringe benefit.

    That is quite different from the OP.
     
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  11. Ed Barton

    Ed Barton Well-Known Member

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    Wouldn't paying it into a savings account constitute income and not a fringe benefit?
     
  12. Bayview

    Bayview Well-Known Member

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    Don't know how it works from that point of view - I suspect that is the case.

    The first job income is treated differently - there is an amount taken out of the gross before it is paid to her, and this amount is paid two days later without any tax deducted, and into our everyday account.

    The second job income is paid straight into the separate C/C with no tax deducted at all off the amounts each pay period.

    Fabulous, really.;)
     
    Last edited: 19th Jun, 2016
  13. Bayview

    Bayview Well-Known Member

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    Yep; I think the second job income is a type of fringe benefit arrangement.
     
  14. Ed Barton

    Ed Barton Well-Known Member

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    I don't see how this payment is anything but taxable income. If you're not having tax deducted from this income then you're up for tax.

    I'd be interested in hearing from some of the tax accountants here.
     
  15. Bayview

    Bayview Well-Known Member

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    It is a tax arrangement available to the Health Industry....I think other Industries have it as well, but I don't know which ones.

    We have been doing it for years, and every doctor and nurse we know does it...it is completely above-board and legal.

    I think the threshold is $16k per year for Packaging....so; say a Nurse earns $60k per year - he/she pays tax on $44k under this arrangement.

    Is this Country great or what?
     
  16. Ed Barton

    Ed Barton Well-Known Member

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    I know the scheme.

    I just don't know how you can receive payment to a savings account.#@% This is just not possible. You are receiving income, not a fringe benefit. Get yourself some industrial rubber gloves.
     
  17. Bayview

    Bayview Well-Known Member

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    I'm not sure what part you are having trouble with? The first job income, or the 2nd job income?

    The first job income goes into our nominated transaction account, but is split up before we receive it....the first amount is taxed as per the nominal tax rate, then 2 days later the second amount is received into the same account, but not taxed at all.

    It used to be that the second Job SP scheme had to be earmarked for expenses such as rent, loans and so on...we had to nominate our Loan account numbers, utility bill account numbers and so forth.

    But somewhere along the line it was changed; now they simply put all the 2nd job SP income into this CC and you can spend it as you wish....there is no restriction.

    We use ours for all sorts of things; school fees, groceries, Family Membership to the Zoo, swimming lessons, etc.

    Once my wife earns more than the $16k threshold from that 2nd job which provides the CC arrangement, the money is then taxed until the FB year expires (April from memory?).

    Then it resets, and the money is received again without any tax taken out until you again reach the threshold..
     
  18. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Generally the employee would have first provided documentation of expenses (e.g. credit card statements) and the payment made to the employee's savings account would be as a reimbursement of those expenses and so should be an expense fringe benefit (and not taxable salary and wages).

    I have seen some employers who just pay amounts up to the yearly FBT exemption threshold into an employee's savings account without requiring any documentation of prior expenses. This is not best practice and I think there is a risk the ATO could say that this is salary and wages (and therefore taxable to the employee) and not a fringe benefit (which would be exempt up to the yearly threshold).
     
  19. Ed Barton

    Ed Barton Well-Known Member

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    Money paid into a savings account is wages and subject to income tax. Fringe benefits paid in place of wages - reimbursement of expenses, interest etc is not wages.

    I just can not understand how you receive tax-free amounts to a savings account. I'm happy to hear from tax accountants here. I'm just concerned that you are receiving an income and not paying tax on it, when you should be.
     
  20. Ed Barton

    Ed Barton Well-Known Member

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    This is not what Bayview is describing. He's saying cash is deposited to his savings account to spend how ever he wants and this amount is tax free.

    There is no risk. This arrangement is clearly taxable income.