Nick Bruining: Can Fringe Benefit Tax benefits for not-for-profits solve the looming aged care staff crisis?

A new study conducted by research house Informed Decisions has revealed a looming shortage of aged care staff, as Australia’s ageing population continues to grow. Confusing differences in pay arrangements could also become a factor, with not-for-profit employees potentially thousands of dollars better off compared to their for-profit counterparts. Informed Decisions predicts that the “boomer” cohort will add 2.5 million people aged 65 or older to the population from the late 2020s and onwards. The group’s chief economist Rob Hall said the ageing population growth was accelerating and already creating issues. “The regulatory environment is being reshaped under the new Aged Care Act, and the workforce underpinning care delivery is under sustained pressure,” Mr Hall said. The supply of aged care staff is not helped by differences in pay arrangements between different providers. While aged care pay rates have been a focal point of the current Federal Government, a quirk in tax laws means those working for aged care facilities operated by not-for-profit organisations can be substantially better off. Fringe Benefits Tax is a 47 per cent tax paid by an employer who provides non-cash benefits to staff. While some fringe benefits like mobile phones, laptops and tablets are generally FBT-exempt for most employees, fringe benefits like the boss paying your mortgage, school fees, non-business travel and health insurance are not. Normally, an employer will add the cost of the FBT liability and the fringe benefit together to provide a “total remuneration cost”. It means most employees paying less than 47 per cent income tax, including Medicare, are worse off salary packaging. Unless you work for a not-for-profit organisation, that is. Not-for-profit employees benefit from a special exemption. The exemption is in place on the basis that they don’t have the financial resources to pay big salaries, so they can provide fringe benefits in lieu of cash. In effect, the employee can pay for things using pre-tax income, with few FBT limitations other than the upper limits to the concession. A not-for-profit aged care worker can essentially salary package $9100 a year of pre-tax income. Fully exploited, a not-for-profit employee earning up to $135,000 a year paying 32 per cent tax and Medicare levy would be $2912 better off than their for-profit counterpart. Someone in the top tax bracket of 47 per cent saves nearly $4300 a year. Mr Hall said the different pay arrangements are unlikely to affect the broader issue of staff shortages overall. “The real test isn’t ‘is it fair between not-for-profit and for-profit providers?’ On their own, tax incentives are more likely to redistribute labour than expand the overall supply,” Mr Hall said. But when there’s already a shortage of aged care staff, remuneration differences can determine where someone chooses to work, disadvantaging those who can’t access the benefit. The United Workers Union, which covers workers in the aged care sector, did not answer questions from Your Money. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association