Effect of the Coalition Victory On NFP Salary Packaging
Thursday, 12th September 2013 at 10:09 am
While the Coalition’s election victory has removed Labor’s proposed changes to the statutory formula for FBT car leasing arrangements there are some new Fringe Benefit Tax changes that Public Benefit Institution (PBI) employees need to be up to speed on, according to NSW-based salary packaging expert Bob Millikin.
There are a number of pending Fringe Benefit Tax and other tax changes that will affect employees in the Not for Profit sector from 2014.
As the Medicare Levy is rising from 1.5 per cent to 2.0 per cent from July 1, 2014, the Australian Tax Office (ATO) has announced the Fringe Benefits Tax (FBT) will also rise from 46.5 per cent to 47.0 per cent from April 1, 2014.
This FBT rate increase will result in a drop in the FBT exempt “packageable” amounts in the $30,000 grossed-up FBT amount, due to the gross-up factors being increased. The “grossed-up value” of the benefit is the amount that an employee would have received in their gross salary (taxed at the highest marginal rate of income tax plus medicare levy) in order to pay for the individual benefit after tax dollars.
Whilst these higher gross-up amounts have not yet been released by the ATO, by using the ATO calculation formulae, the formulae changes should be:
Type one FBT, where the employer claims a GST credit, for example Novated car leases, 2.0647 increased to 2.0802.
Type two FBT, where the employer has no GST claim, for example a mortgage payment reimbursement, or associate car lease 1.8692 increased to 1.8868.
The annual pre grossed-up amounts reduce from $14,529.96 down to $14,421.69 for type one items.
The annual pre grossed-up amounts reduce from $16,049.65 down to $15,899.94 for type two items.
Whilst the FBT exempt packageable amounts will reduce, so will the after tax salary sacrifice cost, due to the higher Medicare Levy saving and the pre-tax salary sacrifices.
Not for Profits need to be considering whether a novated lease or a an associate lease works better in their salary packaging considerations.
An associated lease is structured where the employee’s spouse or partner (the associate) leases a car to the employer and uses the lease rentals received from the employees salary sacrifice to part out the car loan (if any).
The car running costs are also salary sacrificed.
The associate leased car can already exist no matter how old the car is or it can be a replacement vehicle.
The car can be owned at the end of the associate lease contract, but in any event, there is no requirement for car finance at all as the car be purchased for cash.
A novated lease allows the lessor to claim the car GST and the running costs are salary sacrificed net of GST.
The outgoing cash flow is thus minimised. The novated lease structure is the only option where the employee does not have a spouse or partner.
The novated lease structure has a residual value to be paid at the lease’s expiry. For example at the end of a 36-month lease on a $30,000 car the amount payable is $14,064 including GST.
Both novated leases and associate leases are very concessionally treated for Fringe Benefits Tax.
A $30,000 value, non-business use car with a $14,000 lease and running costs per year has the FBT assessment on 20 per cent of the $30,000 car value and is $6000 and not $14,000.
Employees need to obtain advice as to whether a novated lease or an associate lease will provide the best salary sacrifice outcome.
About the author: Bob Millikin is an Orange based salary package expert, and is the owner of Salary Packaging Gurus. His website can be found at www.salarypackaginggurus.com.au