Take the example of a man who works at an abattoir and as part of his annual remuneration negotiations, agrees to a reduction in his salary in exchange for a meat pack for Christmas which includes hams, steaks and other meat cuts. This meat pack is an in-house property fringe benefit.
The taxable value of the benefit would have previously been 75% of the lowest price paid for the meat, which would have been the wholesale price. However, under the amendments proposed, the taxable value of the benefit provided to the man would be the notional value of the meat, which is its market value. The taxable value would therefore be the retail price of the meat.
A similar example would be where someone works for an appliance rental franchise and as part of their remuneration, agrees to salary package the rental of a flat screen TV.
Another example would be where someone who works for a transport company salary packages their travel to and from work. The proposed changes would mean the current FBT exemption would not apply.
The changes will generally apply to benefits provided on or after 22 October 2012 (the date the changes were announced).
However, there are transitional arrangements that will apply to certain salary packaging arrangements that were entered into by the employer and employee before October 22, 2012. Benefits under such an arrangement that are provided before April 1, 2014 would continue to apply the law as it applied before the amendments. All benefits provided on or after April 1, 2014 to employees will be subject to the new provisions.
Other tax law amendments introduced last week propose to amend the tax law to apply an income test to the rebate for net medical expenses (after health fund rebates) from July 1, 2012. For taxpayers with adjusted taxable income above $84,000 for singles or $168,000 for couples or families in 2012-13, the threshold above which they may claim the net medical expenses tax offset will increase from just over $2,000 currently to $5,000 and the rate of reimbursement will be reduced from 20% to 10%. The claim threshold will be indexed annually to the CPI.
The current threshold (ie for 2012-13) of out-of-pocket expenses above which the tax offset can be claimed is $2,120, so the increase to $5,000 will see many people unable to claim the tax offset at all, and even for those who can claim it, the reduction in the rate of reimbursement to 10% will greatly reduce the value of the tax offset. On top of the new income test for the private health insurance rebate, this will be a double-hit for many.
There is no monetary limit to the total amount of offset a taxpayer can receive, but the amount of offset available is limited by the taxpayer’s tax liability. That is, a taxpayer cannot receive a greater amount of offset than their basic income tax liability.
The family threshold will be increased by $1,500 for every dependent child after the first. In addition, for singles and families above their respective thresholds (ie $84,000 or $168,000), the rate of tax offset will be reduced to 10% for the amount of out-of-pocket expenses greater than $5,000.
Those taxpayers who have an adjusted taxable income for rebates below the income test thresholds will continue to receive a rebate of 20% of the amount of their out-of-pocket expenses where those expenses are greater than $2,120 in 2012-13 (indexed by CPI).
All of the above changes have the potential to affect many SMEs and their employees, so their progress through Parliament should be carefully watched.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
