We are starting a new school in NSW with ACNC charity status and ATO FBT rebate status.
I am trying to work out whether paying some salary as a Fringe Benefits is useful. I know it is for staff... but it seems to cost us significantly... and cost more overall than if staff paid income tax due to being taxed at the highest level (47%).
I've used this ATO page to work an example below but need to check I'm on track.
We have $150,000 allocated in our budget for Fringe Benefits.
My understanding is that staff do not pay individual income tax on these benefits. Is that correct?
e.g. staff receives $97,000 (salary - taxed) + Fringe Benefit ($30,000 - not taxed)
Then, we calculate our FBT rebate. Imagining we pay individuals up to the max $30,000 cap in Type 2 benefits (GST-exempt benefits for simplicity here).
Type 2 Aggregate amount
= $150,000 (FBT paid) * 1.8868 (Type 2 aggregate)
= $283,020
Gross FBT Tax
= $283,020*47%
= $133,091.40
FBT Rebate
= $133,091.40*47%
= $62,519.12
We pay expenses of $150,000 in benefits to staff.
We pay ATO $70,527 in FBT.
Question 1. It costs us an additional $70,527 to offer $150,000 of Fringe Benefits. This feels odd and like I'm missing something. If we paid income tax we could include $220,000 as an expense.
But we don't have an income tax bill to reduce - as charities are exempt from this tax.
Question 2: What is the justification of the 'gross-up' amounts? What does it reflect or represent? Is it just a deterant for companies to pay Fringe Benefits? It also doesn't make sense to me.
Thanks for any help!
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