Information for Employers
What is the Employee Benefits Card ?
The EBC™ is a MasterCard that has been purpose designed for use in
the PBI sector to access tax free expense payment fringe benefits
and eliminate the administrative difficulties otherwise involved.
Like any MasterCard it can be used anywhere in the world to pay
for everyday expenses, where MasterCard is accepted.
However, unlike other MasterCard's, the EBC™ provides
no credit and cannot be used to draw cash advances or to establish
direct debits.
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What is the tax exemption for PBI's
On July 1, 2000 the Australian Government introduced
legislation to improve the equity of the tax system while recognising
the special needs of PBI’s who provide their employees with fringe benefits.
The legislation formalised the amount of FBT-free fringe benefits
that may be provided to employees of PBI’s by introducing capped
thresholds for FBT exemption. The legislation provided the exemption
for two groups of employers, namely;
- Private Not-for-Profit and Public Hospitals
- Public
Benevolent Institutions (other than Hospitals)
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What is the Cap for PBI’s?
There are two levels of FBT exemption for
PBI’s:
- $17,000 (grossed-up taxable value) for Private
Not-for-Profit and Public Hospitals
- $30,000 (grossed-up taxable value) for Public
Benevolent Institutions (other than Hospitals)
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How is the 'grossed-up' amount calculated?
Where an employer provides a benefit to or reimburses an expense
incurred by an employee, the employer must determine if that expense
is a Type 1 or Type 2 benefit and use the appropriate gross-up factor
for tax reporting purposes. The gross-up factor is determined by
whether the benefit is an item that is or is not subject to GST.
- Type 1 benefits entitle the benefit provider
to claim GST input tax credits
and are grossed-up by 2.0647
- Type 2 benefits do not entitle the benefit provider to claim GST input tax credits
and are grossed-up by 1.8691
The opportunity offered by this legislation
has not been utilised by many PBI’s because of the administration
involved in determining the tax rate for every expense claimed
by each employee. For most organisations this has meant restricting
the benefits of salary packaging to a few key staff, or outsourcing
the administration to expensive third party suppliers.
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How does the card differ from a pre-paid
employee credit card?
Employers that pre pay money into an employee credit
card are required to account for the monies paid and ensure that
the employee does not draw cash from the account through the internet,
telephone banking or ATM. This approach often leads to the employee
exceeding the tax free threshold and entails administration requirements
significantly greater than the requirements of the Westpac Employee
Benefits Card.
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How does the card work?
The Employee Benefit Card is a Credit Card that operates
on a pre-paid basis and stops employees getting in to debt by limiting
expenditure to the funds available.
- The employee is primarily liable
for amounts spent on the card.
- The card does not access the employee’s funds or debit an
employee’s account.
- The following steps summarise how the EBC™ is established and
operates.
- The employer establishes an EBC™ facility with
Westpac which enables employees to apply for an EBC under a salary
sacrifice agreement entered into with the employer.
- Employees apply for an EBC™ card.
- An agreed salary sacrifice amount is transferred
each pay cycle by the employer through the electronic banking system
to the employee’s
EBC™ account.
- The employee uses the EBC™ to pay for expenses.
Expenditure amounts are limited to the available funds established
by the salary sacrifice transfers. Funds in the account are only
accessible through incurring expenses on the Card and no cash advances
are available.
- Each month employees receive a statement of amounts
spent and the balance of the account is discharged with the salary
sacrifice funds available. Any remaining funds available each month
are carried forward and added to subsequent salary sacrifice transfers.
- At
the end of the FBT year, the employer runs a payroll report to
determine the amount paid to the employee's card. These totals
represent the total of tax free fringe benefits provided.
- Any unspent
amounts are carried forward into the next FBT year.
- On termination
of a card, including termination of employment, the EBC™ is cancelled,
amounts spent up to the date of cancellation discharged with available
balances and any remaining balance returned to the employer to
be reconciled along with other reconciliations on termination of
the employee.
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Where can you use the
Employee Benefits Card?
PAYMENT METHOD |
ACCEPTABILITY |
Point of Sale merchant payments
|
Yes |
Merchant Internet Payments
|
Yes |
By phone direct to merchant
|
Yes |
POST billpay
|
Yes |
| (Whenever you are asked by a merchant
to select an account, you should select “CREDIT”.) |
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Can cash be drawn from the card?
No. Cash withdrawals are electronically barred.
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Can the card be used to pay mortgages or other items
by direct debit?
No. All financial institutions process direct debits
without checking available funds. This would create a debit position
on the card and permit possible overspending by an employee.
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Can the card be used to pay another Credit Card?
No - Australian financial regulations do not allow
a credit card to be used to pay the debt on another credit card.
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Where can the card be used?
The card can be used;
(a) |
|
Everywhere MasterCard is accepted; |
(b) |
|
Telephone payments to any merchant’s
internet site or telephone payment line; |
(c) |
|
Using Australia Post BillPay system. |
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Can the employee pay after tax money into the card?
No.
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Can the card be used overseas?
Yes, the card can be used wherever MasterCard is accepted.
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Why is the lower gross-up factor used?
The payment of the outstanding balance of the
card does not give rise to an input tax credit for the employer.
(ITC’s only arise
where individual expenses are reimbursed.)
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Why is it not necessary to account for
GST?
The payment of the card’s outstanding
balance is a Type 2 nature therefore the expenditure is grossed-up
at 1.8691.
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When does the benefit arise?
A fringe benefit arises when funds are transferred from payroll.
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Telstra payments through Australia Post
Telstra accounts cannot be paid in person using the Employee Benefits Card due to a separate agreement between Australia Post and Telstra. However, there are other ways to pay your Telstra
account using your Employee Benefits Card (eg. via the Telstra Internet).
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