Changes to income tax thresholds over the past five years have influenced salary packaging behaviour, with more employees realising the benefits and high-income earners adjusting their usage.
Changes to income tax thresholds over the past five years have influenced salary packaging behaviour, with more employees realising the benefits and high-income earners adjusting their usage.
In financial year 2007-08, the highest personal income tax threshold – 45 per cent – will apply to people earning $150,000 or more, and in 2008-09, the threshold will be raised to $180,000.
Just two years ago, the upper threshold was nearly half this, at $95,000.
Perth-based Paradigm Total Salary Management chief executive John Morgan said the significant changes to income tax laws in financial year 2006-07 had, in his opinion, changed the perceptions of the value of salary packaging.
“One of the primary myths about salary packaging is it only applies to the top bracket,” he said.
Mr Morgan said that since the threshold for the highest tax rate had increased from $95,000 to $150,000, the company had seen a decline in the use of meal entertainment packaging.
“The other thing we’re seeing is the fast-growing usage of after tax contributions by people who are on tax rates other than the highest marginal tax rate, in lieu of fringe tax benefits,” he said.
Mr Morgan said next year’s increase in the highest tax threshold, from $150,000 to $180,000, would be likely to further stimulate these trends, although the changes for 2006-07 would not affect behaviour.
“This year, I don’t think the changes in the tax regime will have any impact,” he said.
SmartSalary operations director Duncan Ward said there had been significant changes since the federal government’s new superannuation laws came into effect last year.
“We’ve got a lot of people who are now piling money into superannuation,” he said.
However, Mr Ward said the laws had created a disincentive for people aged under 50 years to make significant contributions to superannuation, as contributions of $50,000 or more attracted the highest tax rate of 46.5 per cent.
Pay-Plan salary packaging consultant David Newland agreed that the changes had had limited impact.
“The superannuation changes have highlighted the benefits of packaging to some people, but it’s a niche market,” he said.
“More companies, particularly in this employment climate, are looking at salary packaging as a means to attract employees or retain staff.”
STeP Salary Packaging founder Julian Keys, whose consultancy caters for not-for-profit clients, said the income tax changes had not deterred people from packaging their salaries.
“It’s slowly eroding the value that our clients are getting from their salary packaging, but only by a marginal amount,” he said.