Salary Package Rental Property Expenses to Avoid GST

A smart salary packaging strategy for employees who own residential rental properties involves optimizing their expenses by selectively packaging certain costs related to the property.  This strategy focuses on expenses with no FBT taxable value under the 'otherwise deductible rule'. By doing so, employees can effectively avoid the GST component of these expenses, ultimately boosting their take-home pay.

To provide some context, individuals who own residential rental properties typically cannot claim GST input tax credits for the expenses incurred in maintaining their properties. This limitation arises because the rental income they receive is considered an input taxed supply for GST purposes. Consequently, property owners cannot recover the GST paid on these expenses, although they can usually deduct them for income tax purposes.

However, by only including the GST-exclusive portion of these expenses in their salary packaging arrangement, employees can effectively bypass the GST component. This approach entails salary sacrificing only the cost of the expenses without GST, assuming the employer is GST-registered and eligible for GST input tax credits on these expenses. No adjustments are needed for FBT, as the expenses have no FBT taxable value under the 'otherwise deductible rule,' and they are generally tax-deductible for the employer.

This strategy yields tax savings because of the way the salary sacrifice amount is calculated.

It's important to note that employees typically cannot salary package depreciating assets related to residential rental properties. This limitation exists because deductions for such assets are usually spread over several income years, whereas the 'otherwise deductible rule' requires a one-time deduction.

Importantly, if an employee has already salary packaged rental property expenses, they generally cannot claim a personal tax deduction for these expenses in their individual tax return, thereby preventing double-dipping.

If you need further information or guidance on how to salary package rental property expenses, please get in touch with us.