The business partners are considering handing out cash bonuses to all their staff. They would prefer not to go through wages, so employees are not taxed.
It is a one-off cash bonus, some employees $1,000, others $5,000.
They are happy to register for fringe benefits tax if required. Is this the best way to go?
If you want to pay them cash… that is fine but keep it as part of wages.
Make a cash withdrawal – then determine the PAYG circumstances.
For instance, if someone’s marginal tax rate is 34.5% and they are receiving $5,000 then the calculation becomes:
$5,000 divided by (1 – .345) = $7,633.59
This means for them to receive $5,000 net… the PAYG is $7,633.59 less $5,000 = $2633.59.
If you register for FBT and make the payment as a fringe benefit, you will effectively cost in the highest marginal tax (47%) into the equation.
It is far better to keep it legitimate within the salaries/wages system and factor in the PAYG withholding tax.