Benevolent Employers | What to Look Out For When Assessing Economic Loss

Home / Forensic Accounting / Benevolent Employers | What to Look Out For When Assessing Economic Loss

Benevolent Employers

By Kain Elsmore 

 

The assessment of economic loss requires the interrogation of the financial records of a Claimant to enable the expert to draw some conclusions as to their earnings pre and post-injury.  In relation to employed and self-employed Claimants alike, the challenge exists that the individual tax returns may not provide a true indication of their earnings.  For those persons employed in benevolent organisations, the difference between a Claimants’ reported earnings and “true” actual earnings can be significant.  The following case study provides an example of the manner in which these differences may arise.

Facts

Patricia works as a Case Worker for the Red Cross.

By virtue of her employment, Patricia has access to salary sacrificing arrangements.  As a result, she directs the maximum FBT allowance towards her mortgage repayments.  Additionally, Patricia makes salary sacrificed superannuation contributions equal to $5,000 per year.

Patricia’s personal Income Tax return for the year ended 30 June 2017 included:

Gross Wages$ 20,000
Reportable Fringe Benefits$ 30,000
Reportable Superannuation Contributions$ 5,000

Apparent Earnings

Based on a cursory review of Patricia’s personal Income Tax return, it is easy to adopt an amount of $20,000 as her “but for” earnings.
This approach, however, would disregard the value of the other components of Patricia’s earnings which (by virtue of her employment) she was able to salary sacrifice.

“True” Earnings

Whilst a cursory review of Patricia’s personal Income Tax return may lead to a conclusion of “but for” earnings of $20,000 per year before tax, her “true” earnings are as follows:

Gross Wages$ 20,000
Reportable Fringe Benefits$ 15,300 (grossed-down value)
Reportable Superannuation Contributions$ 5,000
“True” Earnings$ 40,300

In this instance, Patricia’s “true” earnings are around 100% higher than her gross wages.

In calculating Patricia’s after tax earnings, it should be remembered that (i) no Income Tax is paid on the reportable fringe benefits; and (ii) Contributions Tax of 15% is deducted from reportable superannuation.

That is:

  1. An “average” employee deriving $40,300 per year before tax would “take home” $675 per week; whereas
  2. Patricia’s opportunity to access salary sacrificing arrangements on the earnings (of $40,300 per year before tax) composed as above provides for “take home” pay of $758 per week.

Tips

To sum up:

DO look beyond what the gross wages say.

DO ask your client if they access salary sacrificing arrangements.

DO consider how the components of your client’s earnings are taxed.

DON’T hesitate to pick up the phone and call us and we will be happy to assist.

Want to know more?

With more than 30 years hands-on experience in the assessment of economic loss in personal injuries claims, the team at Vincents can help you accurately assess your client’s notional earnings.  If you would like to know more about benevolent employers and what to look out for, please contact Forensic Services Director Kain Elsmore.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

Related Posts
theftcrowd source funding