By David Lilja, Group Remuneration Services Manager, Smartgroup
The Australian Federal Budget was handed down on Tuesday, May 3; the first for the Turnbull-led Coalition Government, and on the eve of the much-anticipated 2 July election announcement.
From a salary packaging point of view, the budget does not offer any significant changes or challenges. Unlike budgets from previous years, salary packaging rules were left relatively untouched so all current salary packaging items will remain available.
The only notable impact on salary packaging is the proposed reduction to annual concessional (pre-tax) superannuation contribution caps. These caps are currently set at $30,000 per year for those aged 49 or under as at 30 June 2016 and $35,000 for those aged 50 or over as at 30 June 2016. From 1 July 2017, the government proposes to replace these with a single cap of $25,000 per year and remove the age restriction so that it applies to everyone. You should note that your employer’s Super Guarantee contributions count towards this cap.
The knock-on effect will be a decrease in the amount employees can contribute to super from pre-tax income.
A further proposal which impacts higher income earners is the reduction of the threshold for the 30% superannuation contribution tax from $300,000 to $250,000, effective 1 July 2017. Currently, those with an adjusted taxable income of less than $300,000 have a 15% superannuation contribution tax.
The Government also affirmed its decision to remove the 2% Budget Repair Levy from 1 July 2017, which will benefit those with an adjusted taxable income greater than $180,000. As a result, there will be an impact on Fringe Benefits Tax (FBT) and, by default, salary packaging.
Currently, the Budget Repair Levy is factored and included in the FBT Type 1 and Type 2 gross-up rates, as well as the FBT rate. From 1 April 2017, these rates will be reduced to reflect the removal of the levy.
While this will have no effect on the $9,010 and $15,900 cap benefit thresholds currently received by PBI and hospital employees, it will have a positive impact on the combined meal/accommodation cap introduced earlier this year, increasing the net benefit value from $2,550 to $2,650. Details will be communicated to affected customers closer to implementation, which is expected to be 1 April 2017.
The positive news continues with changes announced to the 32.5% marginal tax rate which is geared to benefit “average Australians.” The income tax threshold margin will rise from $80,001 to $87,000, and Opposition leader, Bill Shorten had indicated Labor will not oppose this change, which is set to take effect on 1 July 2016.
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.