Salary Packaging Information Guide · NSW Health Service - Salary Packaging - Information Guide...

Salary Packaging

Information Guide NSW Health Service

NSW Health Service - Salary Packaging - Information Guide Page 1 of 13

TABLE OF CONTENTS

1. Disclaimer 2

2 Introduction 2

3 What is Salary Packaging? 3

4 What amount can be packaged? 3

5 Who is eligible for Salary Packaging? 4

6 Is Salary Packaging for me? 4

7 Can Prosperity provide independent financial advice? 5

8 What benefits can I package? 5

9 How will Salary Packaging be administered? 6

10 How do I join? 8

11 How are the funds accumulated for you? 9

12 Are there any administration costs? 10

13 Do I need to provide any evidence for benefits I receive? 10

14 How long does Salary Packaging go for and how do I renew my package? 11

15 Is an annual reconciliation performed? 11

16 Can I cancel my participation in Salary Packaging? 11

17 Can NSW Health Service cancel my participation in Salary Packaging? 12

18 Can I alter my package during the year? 12

19 Do I incur a fee if I change my payment details? 12

20 What do I do if there is a change in employment circumstances? 12

21 Who is responsible for late payment penalties? 13

22 Where to from here? 13

23 Need more information? 13


NSW HEALTH SERVICE - SALARY PACKAGING - INFORMATION GUIDE

1. Disclaimer

Whilst care has been taken to ensure the accuracy of the information contained in this publication, it is not possible to provide complete information in a short guide such as this. Furthermore individual circumstances vary. It is strongly recommended that each employee who wishes to take advantage of Salary Packaging seek independent financial advice to ensure they have a proper understanding of the terms and conditions contained in this document. The publication is provided to interested staff on the understanding that NSW Health Service is not responsible for the results of action taken on the basis of information in this publication nor for any error or omission in this publication and NSW Health Service hereby expressly disclaims all and any liability and responsibility to any reader of this publication in respect of anything done or omitted to be done (or the consequences thereof) by any person in reliance on the whole or any part of this publication. The actions of NSW Health Service and Prosperity of paying benefit items from an employee’s salary package to a third party does not in any way imply a transfer of responsibility or liability to NSW Health Service or Prosperity in relation to any agreement or understanding between the employee and the third party. This disclaimer does not limit or alter those statutory rights that cannot be excluded.

2 Introduction

The purpose of this document is to provide information on salary packaging for employees of NSW Health Service who are eligible to participate. NSW Health Service has outsourced the administration of salary packaging to Prosperity, a locally based independent firm of Chartered Accountants and Financial Advisers. This document will explain how salary packaging works, how it will be implemented, how the benefits will be administered, and any other information that is important for you to consider when deciding whether you wish to participate in the salary packaging scheme. It is important for you to make an informed decision on whether salary packaging is appropriate for your personal circumstances. It is strongly recommended that you obtain independent financial advice. You are under no obligation to join Salary Packaging, as participation is voluntary. Please note that the Salary Scheme outlined in this document may be subject to variation from time to time. Overview

As a result of agreements between NSW Health Service, HREA and NSW Nurses Association, salary packaging has been approved for NSW Health Service employees, to be available from 1 January 2002. Within guidelines provided by the Australian Taxation Office (ATO), NSW Health Service may provide a portion of an employee’s salary as a Fringe Benefit (FB). This Fringe Benefit portion of an employee’s salary is exempted from Pay As You Go (PAYG) tax deductions which an employee’s current salary is subject.


The effect of remunerating an employee in this way is to provide the employee with more expendable funds than would otherwise have been received if the total salary were paid in cash and subject to PAYG tax.

Salary packaging for NSW Health Service employees utilises the Public Benevolent Institution (PBI) tax status, which allows eligible employee’s to access approved benefits tax free up to a grossed up value of $17,000. In a nutshell salary packaging at NSW Health Service will work as follows:

Employees will decide on what benefits they would like to packaged (i.e. claim), how much they are and when they need to be paid

The value of benefits will be deducted from the employee’s pre tax base salary and set aside into a salary account. Benefits will be paid out from this account by Prosperity when payments are due (as long as the employee has sufficient funds available to meet payments).

The saving achieved by the employee through increased after tax income (via a reduced taxable income, benefits provided and lower tax), together with the annual administrative fee charged to individual participants for administering their packaging arrangements, are shared on a 50/50 basis between employees and NSW Health Service.

3 What is Salary Packaging?

Salary packaging is a tax effective means of using part of an employee’s salary to pay for non-cash benefits. This means an increase is net take home pay for eligible NSW Health Service employees. Basically, salary packaging involves NSW Health Service paying for things that an employee would otherwise pay out of their net take home pay. The benefit to the employee comes about in the form of savings in tax that the employee would otherwise pay on their gross wage. These benefits which include mortgage repayments, residential rent payments etc are deducted from an employees’ “base salary” and paid for. The balance of the salary is paid as per the current arrangements. The balance of the salary becomes the employee’s new taxed income and tax is paid on this reduced amount of salary. “Base salary” is an employees substantive base award at the date of commencement of each package year and does not include any allowance, penalty rate, overtime payment, payment for unused leave entitlements, weekly workers’ compensation, or any other payment unless the award specifically prescribes it.

4 What amount can be packaged? The Federal Government introduced Fringe Benefits Tax to make sure that tax was paid on an employee’s gross salary and not the reduced amount as described above. Fringe Benefits Tax (FBT) is a tax payable on benefits provided to employees from employers, unless the benefit provided to the employee is exempt. The FBT rate is 47% in order to deter employees from avoiding paying less tax through salary packaging.


Special rules apply to Public Benevolent Institutions (PBI’s) under the Fringe Benefits Tax Legislation. Basically, employees of public hospitals, who are PBI’s, can receive fringe benefits from their employer up to the grossed-up value of $17,000 per fringe benefits tax year before fringe benefits tax is payable. The $17,000 exemption cap is a grossed-up amount, which means the actual amount of the value of the benefits which employees can receive from their employer FBT exempt is in the range $8,172 - $9,009, depending on whether the benefit is subject to GST. The grossed-up value of a benefit is arrived at by multiplying the value of the benefit by 1.8868 where there is no GST in the benefit provided, or the higher gross-up rate of 2.0802 where there is GST in the benefits provided. The amount of actual salary an employee can sacrifice under this scheme is $9,009 per annum ($9,009 x 1.8868 = $16,998) or $8,172 per annum ($8,172 x 2.0802 = $16,999) without attracting FBT. The actual amount of the benefits, which are exempt from FBT, depends on the type of benefits provided to the employee and whether there is any GST charged on the benefits provided. Under these salary packaging arrangements any FBT liability will be passed on to the employee. i.e. an employee will be liable to reimburse NSW Health Service for any FBT that is payable as a result of the total grossed up value of Fringe Benefits provided for the employee exceeding the $17,000 cap. What if I already receive fringe benefits, e.g. Private use of a NSW Health Service motor vehicle, subsidised accommodation etc? It will limit the amount of benefits you can salary package in order to stay below the FBT exemption cap. If for example you had a $3,000 benefit arising from the private use of a motor vehicle, you would only be able to package $6,009 in order to remain below the maximum of $9,009.

5 Who is eligible for Salary Packaging?

To be able to participate in these salary packaging arrangements you must be covered by a HREA, NSW Nurses association or Staff Specialist award. Within these awards salary packaging is available to permanent full time and part time employees, temporary employees employed under a contract of 3 months or more, of the NSW Health Service, who are covered by the Health Services Act 1997 and the Health Administration Corporation Act 1982 but excludes the Ambulance Service of NSW and Senior Executive Service or Senior Executive Service equivalent. Casual employees are eligible to participate in salary packaging after a period of 3 months. A casual employee form is required to be completed by an employee’s manager prior to completing a Salary Packaging application.

6 Is Salary Packaging for me?

Participation in Salary Packaging is voluntary. If individuals choose not to join the scheme, they continue receiving 100% of their salary as per the current arrangements. Those choosing to take up salary packaging can select from the available benefits, which are offered by NSW Health Service and which best suit their own individual financial situation.


The Australian Taxation Office (ATO) requires reporting of the value of certain benefits employees receive from their employer during an FBT year (being 1 April to 31 March) on an employee’s group certificate. This is known as reportable FBT. This amount is not subject to income tax or Medicare levy, but may impact on the applicability of certain surcharges, entitlements and obligations. Where you elect to salary package and take advantage of the maximum amount of $9,009, then an amount of $17,000 will appear as reportable FBT on your group certificate. The reportable FBT amount on your group certificate will be taken into account for most Government surcharges and income tests including: -

Child support obligations;

HEC’s payment;

Medicare levy surcharge;

Personal superannuation contributions rebate;

Rebate for spouse superannuation contribution;

Superannuation contribution surcharge. As each employees’ circumstances are different, we recommend independent advice be sought to ensure employees understand if salary packaging affects their individual circumstances. Any cost incurred in obtaining financial advice is to be met by you but may be included in your package if you choose to proceed with the salary packaging.

7 Can Prosperity provide independent financial advice?

Yes. Prosperity is a locally based independent firm of Chartered Accountants and Financial Advisers. Independent advice can be sought from Prosperity regarding the effect that Salary Packaging may have on your individual circumstances.

8 What benefits can I package?

Below is a list of benefits that can be packaged by eligible NSW Health Service employees. Certain benefits are specifically exempt from FBT and as such do not form part of the threshold or Reportable Fringe Benefit exemption amount. This means eligible employees can salary package a maximum of $9,009 in benefits which are not specifically excluded from FBT under the FBT legislation and in addition salary package other benefits that are specifically exempt from FBT. Also note, when you salary package a benefit that would have been otherwise deductible in your personal tax return, the benefit packaged will no longer be deductible in your personal tax return.


List of benefits that can be salary packaged by eligible employees as approved by NSW Health Service:

Own home mortgage payments

Private home rental payments

Personal loan repayments

Private Health Insurance

Insurance premiums

Credit card payments

Payments to utilities e.g. land rates, electricity

Motor vehicle running costs

Educational expenses

School fees

Higher Education Loan Program (HELP) fees

Post Graduate Loan Scheme

Strata fees

Private travel

Aged care expenses

Membership fees (includes non-work related)

Remote Areas Housing Assistance

Remote Area Housing Fuel

Novated Motor Vehicle Lease

Meal Entertainment expenses

Meal Entertainment Card

Employee Benefits Card

Novated Motor Vehicle Lease - Smart Drive Prosperity Smart Drive is a vehicle management service whereby lease payments and vehicle running costs are made directly from your pre-tax pay. The FBT taxable value estimate is based on the value of the vehicle, and the estimated number of KM’s to be travelled within an FBT year. It is the employee’s responsibility to ensure that the estimated KM’s are accurate, and that the odometer readings are reported accurately when purchasing fuel with a fuel card. The employee will be liable for any fringe benefits tax that arises from incorrectly estimated KM’s and/or incorrect odometer readings provided. Salary Sacrificing of Superannuation will continue to be available and not form any part of this Salary Package Arrangement. Superannuation is exempt from FBT. Any benefits derived by an employee in salary sacrificing superannuation will not be shared with NSW Health Service.

9 How will Salary Packaging be administered?

In order to make the implementation and management of salary packaging a simple and efficient process for both NSW Health Service and employees, NSW Health Service has outsourced the administration of salary packaging to Prosperity, a locally based independent firm of Chartered Accountants and Financial Advisers.


The main functions to be performed by Prosperity in the administration of salary packaging are

Payment of the selected benefit item(s) in accordance with instructions provided by the employee in the Salary Packaging Application Form;

Provision of statement balances for the value of employees benefits received during the year;

Full reconciliation of salary packages;

Obtaining and storing benefit payment substantiation for Australian Taxation Office compliance and

audit purposes;

Communicating directly with employees in relation to salary packaging; and

Answering queries in relation to salary packaging Responsibilities of Prosperity

Prosperity is responsible for ensuring all forms are received from the employee and checked to ensure they are duly authorised and notated, together with any substantiating documents.

Prosperity is to ensure the package details are correct and that packaging commences on the

agreed date as stated in the confirmation document issued to employees. This will be completed within 2 business days of receiving an employees correctly completed application form and required substantiation.

Prosperity also ensures that all periodic payments are organised for the agreed dates and to the

correct institutions, and that arrangements for payment by other methods are understood and confirmed.

Responsibilities of the Employee

An employee who is interested in participating in Salary Packaging is strongly advised to obtain financial advice from an independent financial adviser experienced in salary packaging.

Before proceeding with salary packaging, the employee should carefully review all salary packaging

options available. If the employee chooses to proceed with salary packaging, the employee completes a Salary

Packaging Application Form indicating the payment details and instructions for the package items the employee has decided to include.

The employee then forwards this form to Prosperity along with the appropriate substantiation

documentation. It is important these forms are completed accurately and the appropriate substantiation documentation is provided to avoid delays in the commencement of packaging.

Where an incomplete Salary Packaging Information Form is received by Prosperity, the employee will

be notified by Prosperity to provide additional information.


Employees who are currently making payroll deductions or who have standing arrangements with their bank for the payment of items which they wish to include in their Salary Package, such as insurance premiums, must take the appropriate steps to change their current arrangements.

10 How do I join?

To join the scheme you must complete the Salary Packaging Application Form. There are four types of salary packaging payment options: 1. Periodic Payment of benefits on fortnightly basis All your fringe benefit entitlement will be paid on your behalf by Prosperity, for periodic payments nominated by you (example, mortgage repayments, personal loan repayments, private rental payments etc). 2. Expense Reimbursements Reimbursement of benefits by completion of a Reimbursement Claim Form - All your Fringe Benefit entitlements will be reimbursed to you by Prosperity for eligible benefits upon completion of the reimbursement claim form together with the original of the account/expense. This includes eligible expenses paid for on your own credit card. Recurring Reimbursement - Where you are seeking reimbursement of identical benefits that will be of equal recurring amounts and at equal time intervals, then you can complete a recurring reimbursement claim form so that you will not have to complete one each time a claim is made. Examples are loans, private health insurance, private home rental etc. 3. Combination of 1 and 2 Part of your fringe benefit entitlement will be paid on your behalf by Prosperity for periodic payments nominated by you and the remainder will be held in a trust account and reimbursed to you via the completion of the reimbursement claim form, or automatically reimbursed to you if it is a recurring reimbursement. All periodic payments and reimbursements are made via Electronic Funds transfer. Periodic payments and reimbursements cannot be made to credit card accounts. Prosperity undertakes to pay all benefits at the agreed times for periodic type payments and within 2 working days of receiving an employee’s reimbursement claim form (provided correctly completed and substantiation attached). Should the employee have insufficient funds, reimbursement will be made to the amount available, the remainder of the claim will be paid as more funds become available. After benefits are paid, Prosperity will then report on their payment to you on a quarterly basis. You will receive a report, showing your year to date position and the transactions made in that quarter. NSW Health Service and Prosperity will not extend credit on any payments for a benefit item. E.g. If you are seeking a reimbursement for flights for $4,000 and you submit your reimbursement claim form, you will be reimbursed your available balance in the first instance. As funds become available, reimbursement will continue until the $4000 has been reimbursed.


A reconciliation of the employee’s salary package will be made at the conclusion of each salary package year. Any benefit entitlement not paid will be reimbursed to the employee. PAYG tax will be deducted from any reimbursement of the excess to you, as is the case on your normal gross salary. All information provided to Prosperity will be treated as strictly confidential.

11 How are the fund Accumulated for you?

Employees wishing to maximise the benefits available to them through salary packaging will elect to have deductions made from their pre tax base salary equal to the maximum fringe benefits tax exempt amount of $9,009 per annum. Alternatively, employees can choose a lesser amount that they wish to package. The maximum fringe benefit tax exemption amounts to $346.50 per fortnight over 26 pay periods if commencing from 1st April. This way funds will accumulate each fortnight which then can be used to pay, or be reimbursed for benefits. That is, each fortnight, your package benefits accrue at 1/26 of the annual package amount of $9,009 or the amount that the employee wishes to package. The maximum amount you can claim at any time is the amount accrued on your behalf less any amounts previously claimed. Alternatively, employees may wish to accumulate funds over a short period of time to allow them to fund large upcoming expenses and request larger amounts to be deducted from their fortnightly gross base salary. This will need to be communicated by employees on the salary packaging application form. Please Note: If your salary package does not commence from 1st April due to the timing of completing your application form and receiving confirmation from Prosperity, then the amount you nominate to be packaged and deducted over 26 fortnightly pay periods in the year from your pre tax base salary, will be deducted equally over the remaining pay periods. The employer will cease to pay any benefit when the total yearly allocation to that benefit has been expended. As stated in the previous section a reconciliation of the employee’s salary package will be made at the conclusion of each salary package year. Any benefit entitlement not paid will be reimbursed to the employee. PAYG tax will be deducted from any reimbursement of the excess to you, as is the case on your normal gross salary.


12 Are there any administration costs?

Fees have been established to cover related and reasonable administrative costs associated with salary packaging. Such costs include establishment costs, maintenance of employee’s records, payroll adjustments, employee correspondence, maintenance of web site, Fringe Benefits tax (FBT) reporting, system requirements, correspondence with supplier’s etc. Administration costs are set according to the following scale, with the appropriate fee determined by the number and type of benefits chosen by the employee in their package. Should packaging commence after the 1st April, the annual fee will be divided by the number of periods the package extends over. The administration cost, shared on a 50/50 basis with NSW Health Service, is included in the salary package and deducted from gross salary in fortnightly instalments. This annual fee will be deducted on a pro rata basis for each period. Administration costs per annum are as follows: Fee (inc GST)

Salary Packaging fee $121.00

Smart Drive Lease only $286.00

Meal Entertainment (per claim) $16.50

13 Do I need to provide any evidence for benefits I receive?

Substantiation is the documentation required for Australian Taxation Office (ATO) compliance purposes which verifies the payment of a benefit to a third party. It will generally include an invoice or similar document. A key part in establishing a salary package is providing the correct documentation, and completing the application form correctly. IMPORTANT If an application form is not correctly filled in and/or substantiation not correctly satisfied, the employee will be notified regarding what additional information is required, this may delay starting the staff member’s package. The substantiation required varies depending on the payment method and the benefit being packaged as follows: Option 1 – Periodic Payments Documents required are proof of the commitment you have made in relation to the payment (e.g. mortgage, car loan, and tenancy agreement). This could be a document from the supplier specifying the following details:

amount per period

frequency of payments

date payment due

details of the payment, which will include supplier’s bank account & BSB number where the payments are to be deposited


Option 2 – Expense reimbursements Reimbursement via Reimbursement Claim Form - The original receipt, invoice or tax invoice (where GST was incurred on the purchase) must be attached to a “Reimbursement Claim Form” at time of claim together with proof of payment for the benefit you are seeking reimbursement for (i.e. receipt from supplier or copy of credit card statement). Alternatively, where you choose to seek reimbursement of past expenses, all receipts and tax invoices may be supplied up front at the initiation of packaging. These must also be accompanied by a Reimbursement Claim form. Recurring Reimbursements - Documentation required is the same as that required for periodic payments. In addition to this, if you are claiming a recurring reimbursement for an item that contains GST (e.g. monthly car insurance), the original tax invoice must be supplied. A recurring reimbursement form must also be completed for each benefit item.

14 How long does Salary Packaging go for and how do I renew my package?

Salary packages will operate on a per annum basis. Each employee will operate their salary packaging arrangements within a “package year”. Irrespective of when an employee commences packaging, the “package year” ends in order to comply with 31 March FBT year reporting requirements. Each new “package year” is for twelve (12) months and commences on 1 April. Prosperity will communicate with you regarding your package for the next year. Towards the end of each package year, an employee may review the components of their salary packaging agreement and vary their package items for the next package year.

15 Is an annual reconciliation performed?

When you renew your package, Prosperity will close your existing package and open a new one. At the time of closing your original package, a reconciliation report will be produced where the budget amount deducted from your payroll is compared against the actual amount paid out on your behalf (including FBT) and a balance is produced. A positive balance means you have underspent and your balance will be reimbursed. PAYG tax will be deducted from any reimbursement of the excess to you, as is the case on your normal gross salary. If you have exceeded the FBT exemption cap you will be required to reimburse NSW Health Service for any Fringe Benefit Tax payable.

16 Can I cancel my participation in Salary Packaging?

An employee may elect at any time to cease salary packaging by giving at least 2 business days notice in writing to Prosperity. Any balance accumulated by you that has not been expended will be paid to you in your next fortnightly pay after your cessation (provided 2 business days notice has been provided) and PAYG deductions will be withheld. Any fortnightly payments being made on your behalf will cease effective the last regular pay period. The remaining administration fee will also be deducted. Should the employee wish to recommence packaging within the same salary package year, the employee may do so by completing a Salary Packaging Recommencement Form. Administration costs will be applicable to the new package.


17 Can NSW Health Service cancel my participation in Salary Packaging?

NSW HEALTH SERVICE can cancel an employee’s participation in salary packaging at any time. Any balance accumulated by an employee that has not been expended will be paid to the employee in their next fortnightly pay after your cessation. Any fortnightly payments being made on your behalf will cease effective the last regular pay period.

18 Can I alter my package during the year?

Employees can alter their salary package at anytime during the package year, at no additional administrative cost. These alterations must be submitted with substantiation documents. An alteration to your salary packaging is defined as follows:

Changing the benefit type (e.g. from Mortgage payments to expense reimbursement), and /or

Changing the amount of a benefit, and/or

Changing from periodic payments to reimbursement, and/or

Altering the number of pay periods you wish to package over, this does not include cessation of packaging or periods where you are not receiving salary.

To alter your salary package, you need to give at least 2 business days notice in writing to Prosperity. If your alteration requires a change of bank account details, please ensure these details are written clearly.

19 Do I incur a fee if I change my payment details?

No. An employee may change their payment details by giving at least 2 business days notice in writing to Prosperity. Change of account details are defined as follows: Where there is no change in benefit type or amount packaged, however the bank account details supplied need to be changed e.g.

Closed bank account (for reimbursement / recurring reimbursement)

Changed mortgage lender (please provide new substantiation)

Changed rental premises (please provide new substantiation)

20 What do I do if there is a change in employment circumstances?

Upon becoming aware of a date for:

Cessation of employment, for whatever reason; or Appointment to a position outside of NSW Health Service; or Suspension without pay; or Commencing workers’ compensation payments and choosing to cease salary packaging

arrangements whilst receiving workers’ compensation payments; The employee must immediately notify Prosperity in writing.


From the date of cessation of employment, Prosperity will cease all benefit payments. It is necessary for the employee to notify Prosperity upon identifying the last payment date. This will permit Prosperity to send final payments and determine any action to be taken with account balances. Any remaining balance can be paid as a lump sum towards an existing benefit item, or paid to the employee as salary and taxed accordingly. The remaining portion of the administration fee will be deducted.

21 Who is responsible for late payment penalties?

The responsibility for any penalties that are incurred as a result of a late payment will rest with the person/entity responsible for the late payment (whether it be NSW Health Service, Prosperity or the employee).

22 Where to from here?

It is strongly recommended that independent financial advice is sought prior to participating in salary packaging. If you wish to participate in salary packaging please complete a Salary Packaging Application Form. The completed forms and declarations should be forwarded to Prosperity Salary Packaging, PO Box 234, Newcastle NSW 2300. Upon receipt of the completed Salary Packaging Application Form and other required documentation, Prosperity will process the information and forward a confirmation of the arrangements which will be put in place within 2 business days, provided the application form is correctly completed and required substantiation is provided. Your signed declaration must be returned to Prosperity Salary Packaging by the due date stated in the covering letter, for your salary package to commence.

23 Need more information?

Please contact: Prosperity Salary Packaging Phone: (02) 4907 7200 Fax: (02) 4929 6855 Email: [email protected]

Newcastle Hunter Mall Chambers 2nd Floor, 175 Scott Street Newcastle NSW 2300 PO Box 234 Newcastle NSW 2300 T 02 4907 7222 F 02 8026 8376 [email protected] www.prosperity.com.au Prosperity Salary Packaging (Newcastle) Pty Ltd ACN 137 945 334

Salary Packaging Information Guide · NSW Health Service - Salary Packaging - Information Guide...

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