Salary Sacrificed Purchase and GST Confusion

browser on 01/04/2017 - 12:35
Last edited 01/04/2017 - 12:38

Had an interesting conversation over BBQ last week, for quite some time I thought salary sacrificed purchase (if eligible) is a saving on income tax. Apparently there's GST implication as well, which sounds quite confusing?

As an example, for an item costs $110 (including $10 GST), $110 comes out from pre-tax salary, actual saving depends on tax bracket.

But in addition to $110 being taken out of the salary (to pay for the purchase), you would also get $10 (the GST) paid to your salary and this $10 is taxable. But why?

So not only you save on income tax, but also make a few bucks from GST? I don't get it.

Financial

Comments

  • dasher86 on 01/04/2017 - 12:54
    +2

    If you purchase an item you pay GST.
    If a company purchases it they pay GST but get a GST credit.
    They only charge you the cost it is to them so that is ex gst.
    Assuming the company is registered for GST

  • retiredfeline on 01/04/2017 - 13:20

    What dasher86 said. Net result is you got it GST free because the company claims it GST free that's all.

  • browser on 01/04/2017 - 13:30

    So that makes the purchase not eligible for TRS, because GST will be refunded by the company who will in turn claim it back through a different process. Correct?

    • bemybubble on 01/04/2017 - 13:53

      Correct. Can't double dip…

  • bemybubble on 01/04/2017 - 13:55
    +1

    Give you a real life example. One of my employees salary sacrificed an expense for their rental property. It was a receipt for $1100. Using the otherwise deductible rule we paid for the $1100 expense, claimed the $100 GST and deducted the $1000 from my employees pay.

    • railspider on 01/04/2017 - 14:54

      Good example. And nice of you as an employer to let someone SS a rental property upgrade!

      • bemybubble on 01/04/2017 - 14:55

        Why not. Gives them the GST benefit and at the end of the day it doesn't change my outlay. It's a win win :)

        • MrHyde on 01/04/2017 - 16:11
          +1

          What about FBT?

        • bemybubble on 01/04/2017 - 17:24

          @MrHyde:

          There is none. Used the otherwise deductible rule

    • browser on 01/04/2017 - 17:19

      The situation explained to me was a little bit different but the end result looks the same.

      1) Employee purchased an equipment for $1100.
      2) Employer reimbursed employee $1100.
      3) Employer deducted $1100 from employee's annual salary.
      4) Employer paid employee $100 as taxable income.

      Thanks for the example, it's good to understand what's going on.

  • Feral cantaloupe on 03/04/2017 - 12:46

    When GST was introduced, the relevant FBT rates were increased by 10% to capture the benefit back. It is only when you receive a benefit that has concessional FBT treatment that you get a potential GST benefit as well.

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