The 2024 Federal Budget, released in May, addresses the cost-of-living challenges faced by everyday Australians. While many will see a decrease in income tax and a bump in their take-home pay, some customers are projected to lose out on benefits they receive through salary packaging. So, what do these tax cuts mean, who is impacted, and what steps should they take?
What do the stage 3 tax cuts look like?
The most notable changes to tax rates from July first are:
- Australians earning between $18,201 – $45,000 p.a. will see a decrease in tax rates from 19% to 16%
- The 32.5% tax bracket will change to 30%, this bracket will also now be applicable to those earning $45,001 – $135,000
- The 37% tax bracket has changed to apply to those earning $135,001 – $190,000
The tax cuts are expected to impact all 13.6 million Australian taxpayers, helping everyday Aussies manage their daily expenses. While the percentages seem appealing, how do they translate dollars each year?
While it looks like everyone comes out a winner as of July 1st, employees working for non-profits classified with “Rebatable” Fringe Benefit Tax status may suddenly lose the advantages of packaging part of their pre-tax salary.
What is Rebatable status?
Certain non-for-profit organisations are eligible to receive a ‘rebate’ or discount on the fringe benefit tax owed when you salary package certain expenses, such as rent or meals.
Your organisation qualifies for the FBT rebate if it is a non-government organisation and a:
- Charity that is an institution (but not a public benevolent institution) registered by the Australian Charities and Not-for-profits Commission and endorsed by the ATO
- religious institution registered by the Australian Charities and Not-for-profits Commission and endorsed by the ATO
- certain type of scientific institution or public educational institution
- trade union or employer association
Not-for-profit organisation established:
- to encourage music, art, literature or science
- for musical purposes
- to encourage or promote a game, sport or animal races
- for community service purposes
- to promote the development of aviation or tourism
- to promote the development of Australian information and communications technology resources
- to promote the development of the agricultural, pastoral, horticultural, viticultural, aquacultural, fishing, manufacturing or industrial resources of Australia.
This status differs from employers with “Exempt” Fringe Benefit Tax status. FBT Exempt employers include hospitals, public benevolent institutions, and health promotion charities. Employers with Exempt status can provide fringe benefits without incurring an FBT liability (up to an established limit). If you work for an Exempt employer, you should continue to benefit from salary packaging, regardless of the changes in tax rates. In short, “Rebatable” organisations can offer salary packaging with a discount on fringe benefit tax, while “Exempt” organisations can offer salary packaging with no FBT liability (for certain benefits, up to a cap).
If you’re salary packaging your rent, mortgage, credit cards or loans and wondering about your employer’s status, check your payslip. If there is a line item for Fringe Benefit Tax (FBT), it’s a strong indication that you work for an FBT rebatable organisation.
My employer has rebatable status, how am I impacted?
The impact depends on your income. With a rebatable employer, there is a salary threshold where salary packaging general living expenses shifts from negatively affecting take-home pay to positively impacting it. Generally, the higher the salary, the greater the benefit. Under previous tax rates, individuals earning over $65,000 per annum saw an increase in take-home pay after salary packaging expenses like rent, mortgage, loans, and credit cards (dependent on individual circumstances like HECS/HELP debt, child support payments, and other salary packaging).
Starting July 1, 2024, with the updated tax rates, salary packaging is expected to be tax-effective only for individuals earning over $140,000 per annum. This means anyone making below $140,000 is unlikely to benefit from packaging general living expenses (rent, mortgage, credit cards, and loans) or meals and entertainment expenses. The reason is that the fringe benefit tax applicable for salary packaging these expenses will exceed the income tax you would pay, making salary packaging a disadvantage to your overall remuneration package and take-home pay.
The next steps
If you’re currently salary packaging with a rebatable employer in the near future you may be at a loss for what to do next.
This is our basic guide for how to proceed
Note, HECS/HELP debt may have a significant impact on the tax effectiveness of salary packaging, as salary packaging may increase your required HECS/HELP debt repayments. The advice above is general in nature, and your personal circumstances will determine the effectiveness of salary packaging.
Where else can I benefit?
Suddenly losing the benefit from salary packaging can feel like a major loss, especially if you’ve been utilising it for years and it was a key part of your remuneration package. But these changes are far from being all bad. Firstly, most people will be receiving a decent pay bump from the new tax change, helping lift some of the burden from the rising cost of living. Secondly, the change gives you an opportunity to reevaluate the packaging options available to you. Beyond packaging the standard general living and meal entertainment expenses, there are a number of other options available that may end up saving you even more per year.
Novated leasing is the most popular benefit with our customers. Available to employees from every sector, novated leasing allows you to pay for your personal vehicle and associated running costs (fuel/charging, maintenance, tyres, registration, insurance and finance) out of your pre-tax salary. Novated leasing has become even more cost-effective with the introduction of the Electric Vehicle FBT Exemption in 2022. By purchasing an EV with a novated lease, our customers have saved $4,000-$6,000 annually in income tax and GST.
Aside from novated leasing numerous other every day expenses can be claimed to give you an instant pay bump:
- Portable Electronic Devices (laptops and tablets)
- Mobile phones and accounts
- Self-education expenses
- Superannuation
- Professional Association Fees
- Income Protection Insurance
- Investment loan interest payments
- Airport lounge membership
- Financial advice fees
Questions or Concerns? Email us at [email protected] or give us a call on 1300 664 323.
