Archive for the 'Legislative Changes' Category

Industry Bodies Respond to Proposed FBT Changes

Since the Federal Government announced proposed changes to FBT legislation on 16 July, the automotive industry has been aflutter anticipating the impact on the industry’s future. Kevin Rudd’s government have said little since the announcement and the federal opposition have vowed to scrap the changes and support the car industry if they’re elected.

This weekend Andrew Bolt’s Bolt Report saw Australian Industry Group CEO Innes Willox label the proposed changes as an “ill-thought-through decision”, adding that the Treasury “didn’t actually model the impact on car sales when they put that together“.

Tim Robert’s of leading industry body Australasian Fleet Management Association (AfMA) explains the impact the FBT changes could have on dealers, manufacturers, fleet managers and lease providers in their video response to the proposed legislation change:

With the federal election a little under five weeks away, AfMA are encouraging those who’ll be impacted by the changes to share their concerns.

You can email AfMA: info@afma.net.au
Treasurer: chris.bowen.mp@aph.com.au
Shadow Treasurer: j.hockey.mp@aph.gov.au

What you need to know about Recent Changes to the In-House Benefit

In-House-cracked-FINAL

Hi Readers – Simon Ellis here, posting about the latest legislative changes…

In the mid-year budget delivered on October 22 the Gillard Government announced without warning that the option to salary package ‘in-house benefits’ would be closed down immediately for new employees, and phased out for employees already packaging the benefit.

In-house benefits are goods or services that your employer (or an associate of your employer) sells to the general public.  For example if you worked for Apple then an iPad would be an in-house benefit, or alternatively if you worked for a financial planner then financial planning advice would be an in-house benefit.

Under the old rules, employees could generally package up to $1,333 worth of these benefits each year – or put another way employees could buy up to $1,333 worth of their employer’s products each year and pay for them using pre-tax income.  It wasn’t a widely used benefit, particularly since not all employers sell goods or services that their employees actually want to buy, but for some employees it was an extra $300 – $600 in tax savings per year.

It’s fair to say that Smartsalary isn’t thrilled with the removal of this benefit, but we’re even less thrilled that the government has not seen fit to release any detail about how to identify whether an employee has a “pre-existing” arrangement (i.e. a packaging agreement that can continue through to April 2014 under the transitional rules).

Nonetheless we’ve been working hard (with what little information we have) to develop a framework that will enable employees currently packaging this benefit to continue packaging it for as long as possible.  At this point, based on what we’ve heard from Treasury, it is our view that anyone who signed up for salary packaging with their current employer prior to 22 October should be able to continue to package in-house benefits through to 1 April 2014 – but we’re yet to get formal confirmation of that view from either Treasury or in the form of actual draft legislation.

As always we’ll keep you informed of our progress, but for the time being it looks like the benefit is on its way out.

Leave a comment here.

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.

Novated Leases: 8 months on from the 2011/12 Federal Budget Changes

Hi Readers – Simon Ellis here guest posting about the 2011/2012 novated lease budget changes.

It’s been just over eight months since the 2011/12 budget changes were implemented and now that the dust has settled we thought it would be a good time to review the new landscape for salary packaged cars.

Following the budget changes there are now 2 types of packaged vehicles in Australia:

  1. Vehicles leased before the 2011/12 Budget; and
  2. Vehicles leased after the 2011/12 Budget.

All vehicles can still use the Statutory Formula FBT valuation method – where the tax payable on the car is calculated as a % of its purchase cost – however the Statutory Formula percentages are now different depending on whether the pre-Budget or post-Budget rules apply.

Each of the above vehicle types is examined in more detail below.

Vehicles leased before the 2011/12 Budget

Novated leases that commenced on or before 10 May 2011 are, in most cases, valued for FBT purposes using the ‘old’ Statutory Formula rates:

Kilometres Travelled

All Years

0 – 14,999km

26%

15,000 – 24,999km

20%

25,000 – 39,999km

11%

40,000km +

7%

Unsurprisingly, packaging activities for employees with a pre-Budget lease remain largely unchanged. In particular, annual km targets are still relevant: low km drivers are penalised by a high (i.e. 26%) valuation rate, while high km drivers are still able to access very attractive low rates.

It is equally important to note that an exception applies to pre-budget cars for which a “commitment event” has occurred post-budget. “Commitment events” result in a vehicle moving from the old Statutory Formula rates to the new rates (discussed in the next section below) as per the following table:

Commitment event

Application of ‘new’ rates

Lease is refinanced Post-budget rates will apply from 1 April following refinance date.
Employee changes employment Post-budget rates will apply from employment change date.

Most drivers holding a pre-Budget car are happy with the old FBT rates, but it is worth noting to those who see an advantage in the new rates that deliberately bringing about a Commitment Event could be seen as tax avoidance by the ATO.

Vehicles leased after the 2011/12 Budget

Novated leases that commenced after 10 May 2011 (or have had a post-Budget commitment event) are valued for FBT purposes using the ‘new’ Statutory Formula rates:

Kilometres Travelled

FBT Year Ending

31/3/2012

31/3/2013

31/3/2014

31/3/2015

0 – 24,999km

20%

20%

20%

20%

25,000 – 39,999km

14%

17%

20%

20%

40,000km +

10%

13%

17%

20%

While the new rates have seen high-km drivers lose a portion of their tax benefit, they’ve also delivered a big win to ordinary drivers who can now lock in great tax savings regardless of kilometres travelled. Packaging employees are no longer penalised if annual kms fall below 15,000!

As predicted, this change has seen a big jump in vehicle packaging amongst ordinary Australian drivers: our leasing team has seen a 150% increase in the number of drivers with low annual kms taking up a novated lease!

To better understand this change we modeled the tax savings across different kilometre bands at two salary levels: $45,000 and $95,000. Our modeling showed the following annual saving results for the 2012 year:

Annual Tax Savings at $45,000 Salary

Annual Kilometres Travelled

Pre-Budget

Post-Budget

% Change

14,500 km

$2,740

$3,356

22%

21,000 km

$3,583

$3,583

0%

30,000 km

$4,548

$4,331

-5%

Annual Tax Savings at $95,000 Salary

Annual Kilometres Travelled

Pre-Budget

Post-Budget

% Change

14,500 km

$3,248

$4,050

25%

21,000 km

$4,470

$4,470

0%

30,000 km

$6,254

$5,853

-6%

To summarise, under the new rules we have seen:

  • a 20-30% increase in the savings available to low-km drivers;
  • no change in the savings available to mid-km drivers; and
  • a 5-10% decrease in the tax savings currently* available to high-km drivers.

*Note that our modeling is for current-year packaging only. Savings for high km drivers will decrease further over the next three years to be more in line with those available to mid-low km drivers.

So, overall there have been a lot more winners than losers from the Budget changes, with low-km drivers seeing a big increase in their tax savings while high-km drivers are seeing only a modest reduction in theirs.

And the most important result: thousands of dollars in tax savings remain available to everyone!

Remember – if you want to see what sort of savings you could achieve through a novated lease then visit our Smartleasing website and have a play around with the Novated lease Calculator.

Leave a comment here.

Potential changes to the LAFHA benefit

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July 2012 update: For the latest information on LAFHA changes, please click here.

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Hello all – it’s Simon here, Senior Tax Advisor at Smartsalary…

The Federal Government has released its proposed changes to Living Away from Home Allowance benefits.

Should these be endorsed, the two points that will most notably impact salary packaging can be summarised as follows:

1. Eligibility: eligibility for the living-away-from-home (LAFH) status is going to be severely limited for temporary resident employees (i.e., those on 457 visas) – in fact, most will no longer be able to claim LAFH status.

2Substantiation: All LAFH benefits will now need to be substantiated, although food reimbursements won’t be, as long as they are paid at “reasonable” levels.

These changes will not apply until 1 July 2012; however we expect that the number of customers who will qualify to salary package LAFH benefits will drop significantly.

So if you’re a visiting foreign worker, or a business employing visiting foreign workers, you might want to start thinking about some of the other salary packaging opportunities available to employees who move from one location to another.

For example, relocation exemptions can offer significant opportunities for savings around direct relocation costs PLUS some temporary accommodation benefits for eligible employees.  Equally, if you’re relocated to a remote area there are very generous concessions available for household rent and utilities.

Smartsalary currently offers these benefits to any business that elects to add them to the menu of benefits, so if you’re interested and these benefits are not already available then you should ask your employer to add them today!

Leave a comment here.

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.


Deven Billimoria
Chief Executive Officer
Smartgroup

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