On Tuesday 6 October 2020, Treasurer Josh Frydenberg delivered the Federal Budget for 2020/21, describing it as an “economic recovery plan” to tackle the challenges brought about by the drought, bushfires, and the COVID-19 pandemic, which have impacted almost every Australian and every Australian business.
Some of the measures announced may affect employee salary packaging benefits, so we’ve summarised the key announcements that may affect salary packaging here.
The Government will bring forward Stage 2 of its legislated tax cuts to 1 July 2020. The 19 per cent threshold will rise from $37,000 to $45,000, and the 32.5 per cent threshold will go from $90,000 to $120,000. The 2020/21 income tax thresholds are as follows:
|
Marginal tax rate for band (excl. 2% Medicare levy) |
Taxable income band 2019-20 | Taxable income band 2020-21 |
| Nil | $0 - $18,200 | $0 - $18,200 |
| 19% | $18,201 - $37,000 | $18,201 - $45,000 |
| 32.5% | $37,001 - $90,000 | $45,001 - $120,000 |
| 37% | $90,001 - $180,000 | $120,001 - $180,000 |
| 45% | $180,001 and over | $180,001 and over |
As the changes are being backdated to July 1 this year, those earning $50,000 per year will get $1,080 back and those on $90,000 a year will get $1,215 back. Those on more than $120,000 will get $2,565 back.
For employees of FBT rebatable employers (such as non-government schools) the thresholds at which the General Living Expenses and Meal Entertainment salary packaging benefit becomes tax-effective may change. Currently, savings can be achieved by employees earning above $37,000, but with more significant savings arising when earnings exceed $90,000. These thresholds will now change to $45,000 and $120,000 respectively.
The Government will provide additional targeted support to low- and middle-income earners with a one-off additional benefit from the low- and middle-income tax offset (LMITO) in 2020/21. The additional one-off LMITO is worth up to $1,080 for individuals or $2,160 for dual-income couples.
FBT will be removed for employer-provided retraining and reskilling of employees who are deployed to a different role in the business.
Currently, FBT is payable if an employer provides training to redundant, or soon to be redundant, employees. This measure will provide an FBT exemption for a broader range of retraining and reskilling benefits, incentivising employers to retrain redundant employees to prepare them for their next career.
The exemption will not extend to retraining acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth supported places at universities (which already receive a benefit) or extend to repayments towards Commonwealth student loans.
This measure applies from the announcement on 2 October 2020.
From 1 April 2021, eligible businesses with an aggregated annual turnover of more than $10 million but less than $50 million will be exempt from FBT on car parking under the existing small business car parking exemption.
From 1 April 2021, businesses with an aggregated annual turnover less than $50 million will be exempt from FBT on multiple work-related portable electronic devices (such as phones or laptops) provided to employees. This measure will remove the limit of one per FBT year on such items.
The compulsory employer superannuation guarantee of 9.5% is legislated to increase to 10% on 1 July 2021. There were no announced changes in the Federal Budget 2020-21 to defer this increase (the rate is progressively increasing until it reaches 12% on 1 July 2025).
The Government will provide the ATO with the power to allow employers to rely on existing corporate records, rather than employee declarations and other prescribed records, to finalise their FBT returns.
Currently, the FBT legislation prescribes the form that certain records must take and forces employers, and in some cases employees, to create additional records to comply with FBT obligations.
The measure will allow employers — with what the Commissioner determines as adequate alternative records — to rely on existing corporate records, removing the need to complete additional records. This will reduce compliance costs for employers while maintaining the integrity of the FBT system.
The measure will take effect from the start of the first FBT year (1 April) after the date of Royal Assent of the enabling legislation.