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Legislation Loop Hole allows Employees to Salary Sacrifice 100% of Rental Expenses |
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Legislation Loop-Hole allows employees to Salary Sacrifice 100% of Rental Expenses.
It is a little known fact that any rental expenses that are considered to be “otherwise deductible”, meaning they are actually paid or due to be paid and have the potential to be claimed as part of the owners’ rental return, are able to be salary sacrificed. Under the “otherwise deductible” rule, the sacrificing of these paid expenses does not attract fringe benefits tax. Unlike a motor vehicle or laptop computer salary sacrificing arrangement where the product is provided solely to the employee, a rental property is commonly owned by joint tenants, sometimes with same legal interest (50:50), and sometimes with different legal interest (e.g. 1:99). Recently, a unique opportunity developed following a famous court judgement, National Australia Bank Ltd V Federal Commissioner of Taxation 93 ATC 4919 (the NAB decision). The judgement produced a loop-hole like situation in our current Fringe Benefits Tax legislation which allows one joint tenant to salary sacrifice 100% of the property’s rental expenses, regardless of their legal interest share. The benefit of this arrangement is that generally the person with the highest income will elect to salary sacrifice the rental expenses. As a result, in most cases they will receive a considerable tax saving or benefit as their taxable income amount is significantly reduced. Even if using the 100% sacrifice option, when completing their personal income tax return, both joint tenants must report their rental income according to their legal interest in the property. Following 2008-09 budget, the Australian Taxation Office is taking immediate action to close down this loop-hole. There will be no new FBT arrangements allowing one joint tenant to sacrifice 100% of the rental expenses available in 2009 or after. Any existing arrangements will only be valid until the end of the current FBT year, 31 March 2009. If you do have an existing arrangement, it is important that you are aware of its validity and speak with your employer and your tax accountant to clarify any grey areas as soon as possible. At The Quinn Group our accountants are up-to-date on all the latest tax requirements and obligations. To discuss your salary sacrifice arrangement, FBT obligations or for any other tax queries, contact us on 1300 QUINNS or click here to submit an online enquiry.
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