FBT Changes Threaten Charity Workforce
15 April 2010 at 1:49 pm
A former Keating economics advisor has warned the Federal Government that changing the current tax concession for charity workers could result in a mass exodus from the Not for Profit sector.
The Government’s Henry tax review is widely expected to recommend changes to the current Fringe Benefit Tax (FBT) regime which may impact on the income of charity workers.
In a new report economist Dr Nicholas Gruen, from the research firm Lateral Economics says more than 80 per cent of employees in the NFP sector regard the current concessions as a significant element of their salary and would consider leaving if benefits were removed.
The Fringe Benefit Tax concession to charity is said to be worth more than $1 billion.
In his report Gruen says the costs and risks of changing the current concession regime are very high with potential costs including destabilisation of NFP organisations and disruption, even termination, of essential services.
Since the Hawke Government introduced FBT in 1986 some Charities and NFP organisations have relied on FBT concessions to attract staff by offering them access to exemptions that increase their after tax wages and reduce the organisations operating costs by providing these benefits rather than higher wages. Under current rules, some hospitals, nursing homes, emergency services, welfare agencies and charities can offer staff a range of tax-free benefits worth up to $30,000.
Treasury Secretary Ken Henry is believed to have recommended, as part of the government’s tax review, that the FBT benefits available to some charity workers be scrapped because they are too complex and open to abuse.
According to Gruen’s report, if the FBT is scrapped then many current employees in the NFP sector may face effective pay cuts and be forced to move jobs.
Gruen argues the proposed change carries significant risks, particularly in the rapidly expanding aged care sector where he says the social costs of uncertainty and disruption in this particular domain are potentially very high.
Gruen’s report also argues that many staff currently employed with FBT concessions as part of their pay, contribute more than the value of their pay because they are driven by altruism rather than money – these workers are driven by a desire to “make a difference”.
He warns that if FBT concessions are abolished and NFP organisations are required to pay for the extra work done by these workers, it could result in the organisations having to find money in their budgets to pay for work currently done for free.
He says while there is no policy maker proposing to stop the FBT concession, any reform such replacing the scheme with cash grants for example would have negligible impact in the long term and would not be worth the trouble.
The Rudd Government has so far refused to rule out scrapping the concession. The Henry Report is expected to be released next week.
The full Gruen Report is available online at: www.lateraleconomics.com.au
My comment in regards to Fringe Benefit Tax concession is that it is opened to abuse.
My case, employed for 1 month in a NFP Ltd – government (and so tax payer) funded.
The CEO receives a gross wage of nearly $80,000 from which 30% is salary sacrificed.
On the top, all the CEO phone expenses mostly to family members by mobile phone calls overseas – so private – are fully expensed. – Part of house is an office and cost of office occupation is expensed (!!!!)
My case: was employed at $18 p. h while the same job condition administrator – senior bookkeeper – assistant accountant pays $45 p. h.
Was told ‘ beware’ that my work expenses (as I worked from home) were taxable !!!! (compared with the above). Was not even given the opportunity to claim expenses from working from home with my equipment without being sacked.
So my view is that concessions must only be given to exploited employees working for NFPs and NOT to highly paid and opportunity taker CEO and the like.