Summary
In his 2012/13 Mid-Year Economic and Fiscal Outlook (MYEFO) review released on Monday 22 October 2012, the Treasurer Hon. Wayne Swan announced the removal of concessional fringe benefits tax (FBT) treatment for 'in-house' fringe benefits where it is accessed by way of a salary sacrifice arrangement.
Background
In-house fringe benefits arise when employees receive goods or services from their employer that are identical or similar to those offered to members of the general public in its ordinary course of business.
Structured appropriately, the employer could access a fringe benefits tax (FBT) concession where by the taxable value of in-house fringe benefits is 75% of the lowest price the identical benefits sold to the general public or under an arm's length transaction. Further, the taxable value of the in-house fringe benefits could also be reduced by a further $1,000 upon meeting certain criteria.
Employers administering programs involving in-house fringe benefits would typically incorporate salary sacrifice arrangements with the view of maximising the benefits to employees at minimal costs.
As part of an overall response to falling government revenue, the Federal Government expects that the proposed measure would raise $445 million in revenue, as well as an increase in GST payments to the States and Territories of $85 million, over the forward estimates period of 4 years.
It has been proposed that the measures would apply from 22 October 2012 for salary sacrifice arrangements entered into subsequent to the announcement, or from 1 April 2014 for salary sacrifice arrangements entered prior to the announcement.
Comments
In making the announcement, the Federal Government has trumpeted that such measures reflect "Labor values" and are aimed at protecting low and middle-income earners.
However, it is our view the proposed measures are at best, short-sighted and misguided. There is also a lack of clarity surrounding how pre-existing salary sacrifice arrangements will be defined.
Moore Stephens has provided advice in this area and administered in-house benefits programs for employers. It is evident that such programs are most beneficial and especially popular amongst employees with taxable income range that would be subject to marginal tax rates of 20.5% and 34% (including Medicare Levy) – purportedly the exact class of employees the Federal Government seeking to "protect".
Rather than furthering their interests, it is our suggestion that pursuit of such a policy will have adversely impact low and middle-income earners and devastate employers who are already struggling for sale in this tough economic climate.
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