Using salary packaging strategy for depreciable assets
As previously mentioned, the effectiveness of the salary packaging strategy hinges on the application of the ‘otherwise deductible rule’ to ensure that no FBT liability arises from the salary packaging arrangement. The same constraint applies with respect to expenditure incurred in acquiring a depreciable asset for use in a rental property.
Broadly speaking, where the ‘otherwise deductible rule’ applies, the taxable value of the benefit is reduced to the extent to which the employee would have been entitled to a ‘once-only’ deduction for the expenditure, had it not been paid or reimbursed by the employer. As a ‘once-only’ deduction is one that is allowable in a single income year for the expenditure, it generally excludes a claim for depreciation (which is usually spread over a number of years).
Consequently, assets depreciated on an effective life basis, or as part of a low-value pool, do not qualify as a ‘once-only’ deduction and, therefore, would be subject to FBT if paid or reimbursed by the employer, which will significantly reduce the effectiveness of the strategy.