Package push runs out of puff

SALARY packaging appears to be a dying practice, despite its benefits to some high-wealth individuals.

The main benefits of salary packaging appear to accrue to high net worth individuals who would be facing the highest marginal tax rate of 48.5 per cent.

And, if put together properly, a salary package can help a company offer better incentives to sought after workers.

The Federal Government’s move to tighten the Fringe Benefit Tax rules made the bookkeeping side of salary packaging harder.

Many employers now prefer to avoid the administrative problems attached to salary packaging, instead opting to pay the employees full salary.

Barrington Partners partner Roger Sullivan said it had taken 16 years but increasingly tougher FBT rules were finally starting to take effect.

“A lot fewer people play in that area than they used to,” he said.

One of the main ideas behind salary packaging is to offset part of an individual’s annual pay towards something that will draw a tax concession.

“Any fringe benefit that does not have a concessional tax treatment attached to it is not worth it,” Mr Sullivan said.

A key salary package item is a contribution to the individual’s superannuation fund. Such contributions attract full tax concessions.

Another big-ticket salary package item is a motor vehicle. Depending on the number of kilometres the person does, this can prove to have some income tax benefits.

Other common salary package items include mobile phones, salary protection policies and laptop computers.

Any fringe benefit that does not draw a tax concession needs to be weighed on its merit.

The FBT rate is 42.5 per cent so there is little real benefit in packaging things that are not drawing other tax con-cessions.

Remuneration Package Consultants’ John Bookman said there were circumstances where salary packaging could be extremely advantageous.

“It depends on the person. There are various tax deductions they might have,” Mr Bookman said.

Ironically, it was the introduction of FBT in the 1980s that legitimised salary packaging.

Before FBT just about everything, even wining and dining clients or taking them on ‘site visits’ were tax deductible.

Charities and hospitals were other areas hit by the government’s FBT tightening.

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