The Bill, “A New Tax System (Fringe Benefits Reporting) Bill 1998” will impose significant changes to the use of remuneration packaging by taxpayers.
As is well known, many employees take fringe benefits in lieu of salary.
In fact, a number of government departments are still in the throes of introducing salary packaging for their employees.
The proposed FBT changes may mean remuneration packaging will become administratively too difficult for some employers and they may decide not to allow employees to take salary as fringe benefits after March 31.
The Bill requires employers to include the grossed up value of certain employee fringe benefits on the employee’s group certificate.
This applies to all fringe benefits exceeding $1,000 paid after March 31.
These fringe benefits are to be known as “reportable fringe benefits”.
The major issue for employees is these reportable fringe benefits will now be included in income tests for tax concessions and surcharge liabilities such as the Superannuation Surcharge and HECS debt repayments.
The tax income year and the FBT year will remain out of alignment.
The fringe benefit amount to be included in an employee’s group certificate will be lagged due to the earlier FBT year that ends on March 31.
The administrative nightmare for employers comes because the proposals require that by March 31, employers must account for fringe benefits on an employee by employee basis.
Currently, employers pay the FBT on the aggregate taxable value of fringe benefits provided in respect of all employees. Now the amendments require the FBT be determined for each employee.
Where there is a benefit being provided for two or more employees, each employee’s share of the benefit needs to be disclosed on their group certificate.
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The impact of the changes on each of the different areas will mean a re-evaluation of the provision of these benefits.
From the year ended June 30, 2000, an employee’s adjusted taxable income that is used for determining Superannuation Surcharge Liability will include the fringe benefits amount reported on the employee’s group certificate as well as Superannuation contributions made.
At present, if an employee derives less than 10 per cent of his total assessable income from salary and wages, he is able to claim a deduction for personal contributions made to superannuation funds.
It has been common practice for employees to use fringe benefits to minimise their cash salary component which then allows them to claim the deduction for the contributions made to superannuation.
From the 1999-2000 year, the cash salary and reportable fringe benefits will be combined to test for the 10 per cent rule.
Medicare Levy and surcharge
The Medicare Levy Surcharge, an extra 1 per cent levy, applies to taxpayers not covered by private hospital insurance.
This applies where the taxable income exceeds $50,000 for a single taxpayer and $100,000 for a family.
For the income year commencing July 1, 1999 the surcharge will be calculated by combining taxable income with reportable fringe benefits.
Social Security and HECS debts
HECS payments will be based on taxable income and reportable fringe benefits from July 1, 1999. Therefore, those subject to HECS repayments will no longer be able to reduce their liability by utilising salary packaging arrangements. Reportable fringe benefits will also be included in the incomes test under amendments to the Social Security Act.
It is likely that we will see a number of employers deciding not to provide employees with salary packaging options. The administrative nightmare caused by these amendments will mean that for large employers it may be easier to simply offer only cash salary. These amendments are hard to comprehend, given that this was the Government that was going to make the FBT process simpler to administer.