Archive for May, 2010

The 2010/11 Federal Budget: Salary Packaging

Once again I am going to hand over the blog to our Senior Tax Adviser Simon Ellis, this time to give you a rundown of the 2010/11 Federal Budget:

The Australian Federal Budget was handed down at 7:30pm Tuesday May 11. This was the third budget for the Rudd Labor Government, and its first in an election year. To some extent the budget builds on the policy priorities already released as part of the Government’s formal response to the Henry Review.

From a salary packaging point of view the budget does not offer any significant changes or challenges. Unlike previous Rudd Government budgets, salary packaging rules were left untouched this year meaning that all salary packaging items will remain available.

In this regard it’s worth noting that there were a number of benefits being closely watched in the run-up to this budget (and the Henry Review) as various sources had indicated that there was some potential for change. The lack of movement around these items in this year’s budget allows us to draw a number of conclusions:

All employees

Cars: no change to the vehicle concession and therefore salary packaging can continue as in previous years
Superannuation: can still be salary packaged up to unchanged concessional contribution caps

Employees of public hospitals and not-for-profits

Tax free threshold: no reduction or abolition of the tax free threshold benefit.
Meal Entertainment: no roll back of FBT concession therefore meal entertainment still a packageable item
Holiday Accommodation and Venue Hire: no roll back of FBT concession for entertainment facility leasing expenses therefore holiday accommodation and venue hire still packageable (where allowed by employer)

I’ve summarised the changes in the following short video presentation:

Overall the budget has not been detrimental to Australian salary packaging arrangements, nor has it required any significant change to packaging systems or procedures.

This means that SmartSalary will continue to focus on the delivery of simple, safe and valuable benefits without disruption for the foreseeable future.

The Henry Tax Review: Salary Packaging

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January 2012 update: For the latest information about the 2011/12 novated lease budget changes, please click here.

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The potential impact of the Henry tax review on salary packaging is explained by our Senior Tax Adviser, Simon Ellis, in the following short video clip:

The long awaited Australia’s Future Tax System review (“the Henry review”) was published on 2 May, along with the Federal Government’s formal response to its recommendations.

The review contains proposals for wide-ranging reforms to almost all aspects of Australia’s taxation system, including several areas that have some limited potential to impact on salary packaging programs. The Government’s response effectively divides the Henry review’s recommendations into three categories:

  1. Recommendations that the Government will immediately adopt
  2. Recommendations that the Government will not immediately adopt, but will consider further in the medium to long term, and
  3. Recommendation that the Government specifically rejects and will not adopt.

This summary focuses on the key salary packaging recommendations contained in the Henry review and the Government’s response to those recommendations in order gauge any potential impact on Australia’s salary packaging environment:

Henry review recommendation Government’s response Impact on Salary Packaging
Recommendation 9(b): The current formula for valuing car fringe benefits should be replaced with a singlestatutory rate of 20 per cent, regardless of the kilometres travelled. Government will not immediately adopt, but will consider further in medium to longer term. No immediate impact.If adopted in the medium to long term this recommendation will result in:

  • an improved or unchanged salary packaging position for more than 50% of all individuals currently packaging (i.e., those on the 20% or 26% rates, and
  • The loss of some, but not all, of the tax savings for those salary packaging a car and using the 7% and 11% rates.
  • Potential for significant uptake by those currently not packaging a vehicle and who drive less than 15,000 kilometres per year i.e. those for whom the 26% bracket to date has not been sufficiently attractive to package
Recommendation 9(e) and Recommendation 43

The FBT ‘threshold’ concessions for Public Hospitals and Not For Profits should be phased out

Government specifically rejects and will not adopt. No impact. This recommendation has been formally rejected and should not be introduced at any stage by the current Government.

As well as what was covered by the recommendations in the Henry review it is relevant to note was what was not included:

Items not included Government’s response Likely impact on Salary Packaging
The FBT concession for meal entertainment benefits provided by Public Hospitals and Not For Profits No response, although potentially relevant that the Government has committed not to implement “any changes to the tax system that harm the not-for-profit sector, including removing the benefit of tax concessions . . .” It remains possible that this concession will be changed in the upcoming budget, even though any reduction would appear to contradict the assurance outlined in the Government’s response to the Henry review.

Other recommendations with some potential to impact salary packaging programs were included in the review’s findings but were not commented on in the Government’s formal response. These items, listed in the appendix to this summary, are unlikely to be picked up in the immediate term, but may be the subject of further discussion in the medium to long term.

Overall, while the recommendations of the Henry review have the potential to change Australia’s salary packaging landscape, the Government’s lukewarm response to most of them and outright rejection of others means that the impact on the salary packaging activities of Australian employers is likely to be minimal.

The Federal Budget is, however, due to be handed down on May 12 and there remains a possibility that other tax changes relevant to salary packaging, but not flagged within the review recommendations, will be included.

SmartSalary will be analysing the Budget outcomes in this regard and releasing further analysis at that time.

Deven Billimoria
Chief Executive Officer

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