There are around 600,000 not-for-profits in Australia, which is around 10% of the workforce.

But it’s no secret that the wages are nowhere near what you’d get if you worked for a big corporate company. However, the job is way more rewarding for most not-for-profit employees than just a paycheck.

Beyond that, the Australian Tax Office offers benefits private sector workers cannot access—for example, one of the most common tax concessions for not-for-profit employees.

So, in this blog, we’ll look at salary packaging, which is a way for you to allocate a portion of your income to pay for specific expenses before your income tax is calculated. This can benefit you by reducing your income tax and increasing your take-home pay.

NFP Salary Packaging and FBT Concessions

Not-for-profit organisations in Australia are eligible for various tax concessions from the Australian Tax Office (ATO), including a rebate on Fringe Benefits Tax (FBT).

This rebate, known as the Fringe Benefits Tax (FBT) rebate, allows NFPs to provide their employees with salary packaging arrangements. These arrangements can increase an employee’s take-home pay and reduce their pay tax obligations without any additional cost to the employer.Under the FBT rebate, eligible NFPs can claim a rebate of up to 47% on the gross FBT payable subject to a $30,000 capping threshold per employee. This concession allows NFPs to offer salary packaging options to their employees and attract and retain talented staff despite lower base salaries than the private sector.

Tax-Free Salary Packaging and How it Affects Your Income Tax 

Simply put, not-for-profit employers have a different tax status than other organisations and companies in Australia. The Australian Tax Office (ATO) offers them various concessions, including a Fringe Benefits Tax (FBT) rebate. These benefits also allow them to provide a salary-sacrificing arrangement.

This kind of salary packaging arrangement empowers your not-for-profit organisation to allocate a portion of your income to pay for specific expenses before your income tax is calculated. This flexibility allows you to pay less income tax and have more money in your pocket each month.

Your employer can add to your income offer by paying for specific expenses using your pre-tax salary. Once you’ve agreed to enter into this arrangement with your employer, part of your salary is set aside or ‘packaged’ into pre-tax funds to pay for your personal expenses. You won’t have to pay tax on the packaged amount.

Note: A salary sacrifice arrangement doesn’t increase your income amount. It allows you to pay for certain expenses before tax is paid, so you pay less tax and have more take-home pay.

NFP Salary Packaging For Capped and Uncapped Benefits

As a not-for-profit employee, you can salary package a variety of everyday expenses such as mortgage, rent, groceries, and more:

• Mortgage or rent
• Personal loan repayments
• Credit card payments
• Utility bills (electricity, gas, water)
• Groceries
• Fuel and vehicle maintenance
• Insurance premiums (health, car, home, etc.)
• School fees and childcare costs
• Medical expenses
• Work-related equipment (laptops, mobile phones, etc.)
• Professional memberships and subscriptions
• Meal entertainment (dining out at restaurants, cafes, pubs, etc.)

For most of these expenses, the salary package amount is capped at $15,900 per FBT year. However, there is a separate cap of $2,650 per FBT year for meal entertainment expenses.

Beyond these capped benefits, there are also uncapped benefits you can salary package:

• Voluntary superannuation contributions
• Novated leasing for your car
• Work-related self-education
• Professional memberships and subscriptions
• Bus travel benefits
• Other work-related expenses

NFP Salary Packaging and Remote Area Benefits 

NFP employees working in remote areas are not forgotten. They may be eligible for additional remote area benefits as part of their salary packaging. These benefits recognise the unique challenges of working in remote areas and aim to make your experience more rewarding. 

• Remote area housing: You can salary package your rent or mortgage payments for a home in a remote area.
• Remote area fuel: You can salary package the cost of fuel used for personal purposes in a remote area.
• Remote area holiday transport: You can salary package the cost of travel to and from a remote area for holidays.

These additional benefits can add a lot of value to an NFP employee’s salary package and make working in a remote area more appealing.

Salary Packaging a Vehicle through Novated Leasing for NFP Employees

Novated leasing is a popular way for NFP employees to salary package a vehicle. In a novated lease arrangement, the employee leases a vehicle from a finance company, and the employer agrees to make the lease payments from the employee’s pre-tax salary. This can save the employee a lot of tax.

Novated leasing benefits for NFP employees include:

• Tax savings by paying the lease with pre-tax dollars
• Ability to bundle vehicle running costs (fuel, maintenance, insurance) into the lease payments
• One regular payment that covers all vehicle costs
• Choice of vehicle that suits the employee’s needs and budget

At the end of the lease term, the employee has the option to purchase the vehicle outright, trade it in for a new lease, or simply return it with no further obligation.

NFP Employee Benefits When Salary Sacrificing

Let’s look at a detailed example to show the tax savings and benefits of NFP salary packaging.

Sarah is a nurse working for a not-for-profit hospital, earning an annual salary of $85,000. With a salary packaging arrangement, Sarah can pocket an extra $6,676 per year, as shown below:

By salary packaging $18,550, Sarah reduces her taxable income and saves $6,676 in income and fringe benefit taxes. That’s an extra $128 per week in take-home pay with no extra cost to her employer.

In addition to the direct benefits to employees, salary packaging can also be a powerful tool for NFPs to attract and retain staff. By offering competitive salary packaging arrangements, NFPs can increase the value of their remuneration packages without incurring extra costs.

This is particularly important in the NFP sector, where base salaries are often lower than in the private sector. By showing the tax savings and extra take-home pay available through salary packaging, NFPs can be employers of choice and compete more effectively for top talent.

Plus, by allowing employees to maximise their take-home pay through salary packaging, NFPs can boost staff morale, job satisfaction, and retention rates, which in turn means reduced turnover costs and greater organisational stability.

Key Points

• NFP employees in Australia can benefit from salary packaging due to FBT concessions for NFP organisations.
• Salary packaging work allows NFP employees to pay for a wide range of expenses with pre-tax income, reducing their taxable income and increasing their take-home pay.
• NFP employees can receive a salary package of up to $15,900 for general living expenses, $2,650 for meal entertainment per FBT year, and various uncapped benefits.
• Remote area NFP employees may be eligible for additional uncapped salary packaging benefits.
• Novated leasing is a popular way for NFP employees to package a vehicle on salary and save on tax.
• Salary packaging providers are vital to helping NFPs ensure compliance and maximise employee benefits.
• By offering competitive salary packaging arrangements, NFPs can attract and retain staff better.

As with any financial decision, make sure it’s right for you. NFPs looking to offer salary packaging to their employees and employees looking to salary package should talk to a qualified accountant or experienced salary packaging provider.