Salary Packaging in 2012/13Cars, Super and LAFHA

Australian Payroll Association

Contents

1. Salary Packaging: the basics

2. Cars: managing the 2011 changes in 2012

3. 30 September 2012: the end of LAFHA?

4. Superannuation changes – watch out for the cap!

5. New packaging ideas and opportunities.

The Basics – No Packaging

Employer: $150 SalaryEmployer:

$150 Salary

The ATOThe ATO

EmployeeEmployee

$150 Salary

$100 Post-tax

ATO’s Bank Account

ATO’s Bank Account

$50 Tax

$100 Benefit

Employee’s Bank Account

Employee’s Bank Account

$0

The Basics - Packaging

Employer:$150 SalaryEmployer:

$150 Salary

The ATOThe ATO

EmployeeEmployee

$50 Salary

$33.25 Post-tax

ATO’s Bank Account

ATO’s Bank Account

$16.75 Tax

$100 Benefit

Employee’s Bank Account

Employee’s Bank Account$33.25

Salary Packaging Account

Salary Packaging Account

$100 Salary

The Basics: Benefit Categories

•Cars

•Exempt Benefits

•Otherwise deductible benefits

•Concessional benefits

•Public Hospital/PBI benefits

•In-house benefits

There are now two categories of car benefit:•Old (or “Grandfathered”) Vehicles

•Transition Vehicles

Salary Packaged CarsThe 2011 Changes

2012/13 Annual Kilometers

Statutory %

Old Transition

0 – 14,999 26% 20%

15,000 – 24,999 20% 20%

25,000 – 39,999 11% 17%

40,000 + 7% 13%

Transition vehicles moving towards flat 20% rate

Grandfathered vehicles

•Differing priorities:

–Over 25,000km: Protecting ‘grandfathered’ status is critical!

–Under 15,000km: Losing ‘grandfathered’ status is critical!

But deliberately bringing about new rate is tax avoidance.

•“Commitment Time” dictates result

•New Vehicle

•Refinance of existing vehicle

•Change in employer

Salary Packaged CarsThe 2011 Changes

Novated Leases: Annual KM travelled

Salary Packaged CarsThe 2011 Changes

•LAFHA rules change from 1 October 2012:

–‘Usual place of residence’ must be an Australian address: no more expats

–Test to be tightened: usual residence must be ‘available’?

–Allowance format to be abolished – reimbursement or tax deduction

–Result: only a handful of employees will be eligible but LAFHA .

The End of LAFHA?

•In-house benefits are all the rage:–Public Transport

–Electricity

–Water Rates?

•Relocation benefits: replacement for LAFHA?

New packaging opportunities

–Temporary accommodation

–Home sale and purchase costs

–Removal, transport and travel costs

•It’s all about the ‘cap’

•$25,000 - all employees

•Includes SGC amounts (except some defined benefit State funds)

•Whose responsibility is it to monitor?

•Are we moving to a 12% SGC rate?

Superannuation

•Public Hospitals & Charities: NFP Tax Concession Working Group

•Cars: Transition to 20% flat rate finishes on 1 April 2014

Going forward . . .

Takeaway

Salary packaging remains an effective way to increase employee effective incomes and to deliver substantial tax savings

Employers should regularly review their benefit menu to ensure:

1.employees are offered a full range of salary packaging opportunities; and that

2.those opportunities comply with the latest tax rules and conditions.