Archive for the 'Henry tax review' Category

2012-13 Federal Budget Analysis: Video

Watch our video analysis of the 2012-13 Federal Budget. Simon Ellis, our Senior Tax Specialist, outlines his thoughts on the budget and how they will impact salary packaging.  A written summary can also be found here.

Leave a comment here.

The National Tax Forum and Salary Packaging

Hi Blog Readers – Simon Ellis here guest posting on the recent Tax Forum.

Well the National Tax Forum has wrapped up in Canberra, and Australia’s stockpile of tax policy ideas has now been officially replenished.  Influential thinkers from around Australia – from politicians to tax professionals to ordinary Australians – have had an opportunity to express their views on the direction in which Australia’s tax policy ought to head.

So “what about salary packaging?” I hear you ask.  Are there any serious Forum suggestions with the potential to impact it?  Well I’m glad you asked:

1.  Taxing benefits in employee hands

Parts of the business community have eagerly seized a Henry Review recommendation to move the burden of benefit taxation from employers to employees.   These advocates want to make benefits (especially cars) taxable ‘in your hands, rather than your employers’.

It’s not exactly a ‘winner’ from a political or social perspective and it’s doubtful we’ll hear much more about it in the near future.

 2.  Removing the tax-free ‘cap’ benefit

Once again, commercial hospitals have voiced their longstanding complaint that the tax-free ‘cap’ benefit is unfair to them.  The cap does make it much harder for them to use their extra cash to poach valuable staff from Public Hospitals and Charities, but then that’s exactly what the cap was meant to do so I’m not sure what their point is.

It’s fair to say that if their policy suggestion becomes seriously considered they can expect a hell of a fight from the Charity Sector (and Smartsalary for that matter), just like they got a year ago when the Henry Review considered the same complaint.  The Rudd government had no appetite for the fight back then and it is unlikely that the current government has much appetite for it now.

 3.  Shutting down “loopholes”

One of the more interesting things to come from the Forum has been a general commitment from our Treasurer to close “tax loopholes”, which he seems to believe includes the living-away-from-home allowance.

Aside from the fact that the LAFHA is not actually a loophole, his general sentiment is probably one with which most people would agree and some policy initiative is probably likely in this area.  I don’t think that they’ll find it easy to tamper with LAFHA, since it’s a benefit that many businesses legitimately rely on to move talented staff across their enterprise, but it looks like they’ll give it a go.

That’s about all from a salary packaging perspective.  It was a wide ranging review so we wouldn’t expect to see benefit taxation taking centre stage but, even so, it didn’t seem like there was a groundswell of support for significant benefit reform.  The recent changes to car packaging rules, which made vehicle packaging more attractive for low kilometre employees, seem very likely to remain intact.

The echoes from these sorts of events can continue to bounce around the public debate for a long time to come – in fact the government’s announcement that it will now create a business tax reform working group, a think tank on tax reform plus an independent tax advisory board for the ATO practically guarantees that they will.

We’ll be keeping a close eye on the tax reform agenda going forward and we will, of course, keep you posted.

Another round of FBT changes?

Hi Readers – Simon Ellis here, taking over Deven’s blog to talk taxation.

It seems like only yesterday I was writing to advise you of an upcoming tax review with the potential to impact your salary packaging. Back then it was called “Henry” after the surname of its Treasury co-ordinator, yet here we are again not two years later discussing its far less creatively named progeny – the National Tax Forum.

It should really have been called Son of Henry, although in a way I’m glad we’re no longer giving “people” names to our legislative reviews. After all, putting a human face on tax reform is just false advertising.

Anyway, those of you who were paying attention last time would have noticed that the Government’s formal response to the 140 (or so) recommendations in the Henry review was a little on the thin side. Of all the recommendations made only a handful were adopted as policy (including the flat 20% rate for salary packaged cars) leaving the majority to languish in the “maybe one day” pile with some mouldy old Ralph and Asprey ideas.

But if you thought you’d seen the last of those recommendations then it’s now time to think again. Son of Henry is here to re-float ideas from the original Henry review, including:

  • a complete revision of benefit taxation in Australia: simplifying benefit valuation rules and moving tax obligations from employers to employees
  • “green benefits”: considering ways to encourage employers to ‘green’ their workforce by offering concessions for environmentally responsible benefits like public transport and low-emission vehicles; and
  • abolition of the tax-free cap for public hospitals and charities in favour of direct grants and other subsidies (even though the government promised not to implement this recommendation “at any stage” in its initial response).

What does this mean for our customers? Well – nothing at this stage as there’s no guarantee that anything will change in any substantial way.

But it does mean that Smartsalary will dive back into the public policy pool on behalf of salary packaging employees everywhere, and use whatever influence we have to protect your tax savings and lobby for new ones.

So while we’re in those murky waters – is there anything you’d like us to mention on your behalf?

Leave a comment here.

Changes to novated leasing – draft legislation released

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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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Simon Ellis here, blogging again on Deven’s request in relation to the recent changes to the rules around how car benefits are valued for salary packaging purposes.

Deven has asked me to update our readers as the draft legislation for the new car fringe benefit rules has now been released by Treasury as Taxation Laws Amendment (2011 Measures No. 5) Bill 2011. This release clarifies a number of the outstanding issues lingering from the budget announcements, although there are still some areas of confusion and it’s always worth noting that the final legislation has not yet been passed by Parliament.

Nonetheless there’s good information in this latest release that our readers and customers should find helpful. But before I get into detail I thought I’d first provide a brief recap of the 2011 Budget changes:

  • car fringe benefits will no longer be ‘valued’ for tax purposes using a sliding scale of rates based on kilometres travelled: all cars will be valued at a flat 20% rate
  • The new rules will not apply to employees whose packaged vehicle was set up prior to the budget announcement on 10 May 2011, and
  • Transitional rates will apply to employees who commence packaging after the budget announcement and who travel in excess of 25,000km per year

What we now know

The draft legislation and the explanatory memorandum that accompanies it have clarified the following:

  • The trigger point for application of the new rules is likely to be the time of novation, i.e. the date the vehicle novation agreement becomes binding on all parties. For example, a car packaged under a novation agreement signed before 7:30pm on Tuesday 10 May 2011 will be packaged under the old rules, whereas cars novated after that time must be packaged under the new/transitional rules;
  • Anyone currently packaging a car under the old rules will continue to use those rules until their novation contract with their current employer ends. This means that changing employers or going on extended leave will generally trigger application of the new rules (as these events involve the cessation of a novation agreement);
  • Employees currently salary packaging a car at the 26% rate will not be able to access the new 20% rate until the end of their novation agreement. Artificial attempts to end a novation early solely in order to access the new 20% rate are likely to be pursued by the ATO as tax avoidance; and
  • If a ‘trigger’ occurs during an FBT year such that a car moves from the old to the new rules (but stays under the same employer) the old rules will continue to apply for the remainder of that FBT year and the new rules will only apply from 1 April in the subsequent year.

There are still a few unresolved issues, such as confirmation from the ATO on when it considers a novation agreement ‘binding’, nonetheless the release of the draft legislation has allowed Smartsalary to start redesigning our packaging systems, rules and processes to accommodate the new rules.

If you’ve got any burning questions, feel free to ask them in the comments section and we’ll do our best to answer. Otherwise call us on 1300 476 278 and talk with one of our friendly leasing experts.

Leave a comment here.

Video update: 2011 Federal Budget

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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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Earlier today we filmed an interview with Simon Ellis, our Senior Tax Advisor. In this video, he outlines his thoughts on the recently announced changes in the 2011 Federal Budget and how they will impact salary packaging. A written summary can also be found here.

Changes to Novated Leasing – 2011 Federal budget

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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 2011-12 Federal Budget has been handed down and there are important changes in play for vehicle packaging. Simon Ellis, our Senior Tax Advisor, gives us a run-down of these changes and how they are likely to impact those of you salary packaging a novated car lease or thinking about packaging one.

Following a significant amount of media coverage last week we were expecting changes to the way new leases are taxed for Fringe Benefit Tax (FBT) purposes. And in fact, that’s what we got.

From tonight all new novated leases will be subject to a new FBT valuation regime that will, after four years, result in all salary packaged cars being valued for tax purposes at 20% of their initial cost regardless of the kilometres they travel. These changes are consistent with the Henry Tax Review recommendations presented in May last year. For more information have a look at Smartsalary’s coverage of last year’s Henry Tax Review.

The budget papers are a bit light on detail, but the Treasurer’s home page does provide detailed information on the implementation of the new rules.

The key points from the perspective of employers and employees are as follows:

  • The new rules do not apply to existing novated leases. All current packaging arrangements remain unchanged.
  • New leases will, from today, use a transitional set of statutory rates that will gradually phase out the 7% and 11% valuation options over the next four years (see the table in the Treasury link above). This means that the savings achievable for employees driving more than 25,000 kilometres per annum will be lower and that, at least for the time being, some employees will still need to meet kilometre targets in order to get the most out of their packaging arrangements.
  • The new rules will now open up novated car leasing to employees currently not packaging a vehicle and driving less than 15,000km per year. Previously employees driving less than 15,000 kms were required to value their cars for tax purposes using the 26% rate, but now the 20% rate is immediately available. Since the average Australian car travels less than 15,000km per annum it’s likely that a significant number of employees who previously couldn’t achieve good savings will now benefit from a salary packaged car.

A number of questions remain unanswered- for example, “will those currently packaging a car on a 26% rate be locked in to that rate for the term of their lease or will they be able to elect to apply the new transitional rates? and “how will these rules apply to employees who are currently mid-settlement on a novated lease?” At the moment Smartsalary is investigating these and other issues. We’ll let you know more as we find out.

We’ll be issuing more detailed instructions to our customers over the coming days, and will be posting a video presentation here shortly explaining our views in more depth. Stay tuned.

Well that’s a lot to consider and I’m sure there will be plenty more to come. In the meantime feel free to provide your thoughts on this change in the comments section.

Salary sacrifice hits the press

You may have seen some recent articles in the press about FBT and salary packaging, particularly within the Not-For-Profit sector. We thought you might be interested to see the media release about these issues put out by ASPIA, the Australian Salary Packaging Industry Association . . .

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PRESS RELEASE 25th January 2010

The Henry Review and Changes to FBT Concessions for Charities: Media Errors

There have been a number of stories in the national media over the past few days reporting that the Henry Taxation Review has recommended abolition of the FBT ‘threshold’ concession for Charities and Public Hospitals.

In what may be an attempt to pre-emptively “sell” these changes to an understandably sceptical public, the following misrepresentations and inaccuracies have somehow been included.

1. The FBT concession is worth a maximum of $7,460 per person, not $30,000 as has been reported

The $30,000 figure refers to the grossed-up value of fringe benefits included under the tax concession. In fact in the vast majority of cases, the actual after-tax saving delivered by this concession is only $4,815 (and even those on the top marginal rate can only save a maximum of $7,460).

For Public Hospital workers the concession is even smaller, with most workers achieving an after-tax saving of only $2,730.

2. The FBT concession is neither complex nor ‘open to rorting’

The FBT concession allows qualifying employees to salary package any expenditure up to the prescribed limit. This could be the cost of purchasing daily groceries or the cost of renting a jumping castle for a birthday party – it doesn’t matter what the expenditure is as long as it is less than the annual limit.

This is neither complex nor open to rorting as every employee in a qualifying industry gets exactly the same limit regardless of what they spend their money on.

3. The FBT concession is not for ‘high-paid executives’

The FBT concession is available to all staff who work for a Charity or Public Hospital.

Many of the media articles have mentioned Porches and holiday homes for ‘high-paid executives’, but in reality the concession that the Review proposes to abolish has nothing to do with these items.

4. The FBT concession is neither costly nor inefficient

The threshold concession for charities and Public Hospitals is robust, efficient and a low-cost way of delivering assistance to workers in the Charity and Public Hospital sector.

In fact the cost of administering the assistance is generally less than 1.5% of the total after-tax savings delivered to these employees and is borne by the employees themselves.

A complex, government administered system of grants and cash rebates is a far less efficient way of delivering this benefit, and will almost certainly see a significant reduction in the value of the assistance delivered to workers in these important industries.

The Salary Packaging Administration Industry agrees that tax policy and reform is important, and that genuine ‘rorts’ should be carefully reviewed and addressed. Nonetheless a positive outcome for Australians can only be achieved if the public debate is accurately informed.

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For further comment or information in relation to the above items please contact our technical spokesperson on this issue, Simon Ellis on (02) 9112 4265 or 0423 206 215.

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Deven Billimoria
Chief Executive Officer

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