Tax Planning Strategy 163 | Salary Packaging Business Assets to Double Dip

This tax strategy allows an employee, who is also separately carrying on a business as a sole trader, to claim depreciation on the cost of an asset in their business that has been fully reimbursed by their employer. This strategy involves ‘double dipping’ as the employees business depreciation claim is unaffected by their employer reimbursing them for the cost of the asset. This is unusual as section 51AH normally prevents an employee claiming a deduction for an expense that has been reimbursed by their employer.

An employee can claim an immediate write-off for the total cost of depreciating assets purchased under the following two circumstances:

• The $300 immediate write-off for non-business income-producing assets e.g. rental property assets.
• The $20,000 immediate write-off of business assets by a Small Business Entity. (The $20,000 per asset write-off is only available till 30th June 2018 then it drops back to the standard $1,000).

The significant after-tax savings generated by salary packaging the depreciating assets is the result of:

• Employer claims a deduction for the GST exclusive cost of the assets reimbursed.
• Employee avoids paying GST. As the employer can claim an input tax credit in respect of the reimbursement, the employee will only salary package the GST exclusive cost of the benefit. The net result is the employee avoids paying GST on the reimbursement.
• Employee claims an immediate write-off under the $300 immediate write-off for non-business assets or the $20,000 immediate write-off for business assets. This results in the employee ‘double dipping’.
• No FBT payable by the employer. This is due to the operation of the ‘the otherwise deductible rule’.