Many salary packaging arrangements in the not-for profit (NFP) industry are implemented on an FBT year (April to March) basis, due to the applicable caps for FBT concessions. However, the tax impact for salary sacrificed prior to 1 July 2024 will be based on the current personal income tax rates, while the tax impact for salary sacrificed after this time will be based on the new reduced rates.
Following is a summary of how the new tax rates impact employee’s salary packaging with different types of employers.
Tax rate changes
Taxable income
|
Marginal Tax Rate in 2023/24
(excl. 2 per cent Medicare)
|
Marginal Tax Rate in 2024/25
(excl. 2 per cent Medicare)
|
| $0 to $18,200 |
Nil |
Nil |
| $18,201 to $45,000 |
19 per cent |
16 per cent |
| $45,001 to $120,000 |
32.5 per cent |
30 per cent |
| $120,001 to $135,000 |
37 per cent |
30 per cent |
| $135,001 to $180,000 |
37 per cent |
37 per cent |
| $180,001 to $190,000 |
45 per cent |
37 per cent |
| Over $190,000 |
45 per cent |
45 per cent |
FBT exempt employers
This category includes public benevolent institutions, health promotion charities, public and NFP hospitals and public ambulance services. Employees of these employers may have the opportunity to salary package benefits exempt from FBT, up to an annual cap. Salary packaging exempt benefits should continue to create tax savings for these employees, to the extent they have earnings greater than $18,200. So, while the tax being saved might drop from 32.5 per cent to 30 per cent, of from 37 per cent to 30 per cent, for instance, there should still be a saving.
For example, in 2023/24, salary packaging $15,000 of mortgage repayments might create tax savings at 37 per cent, being $5,550. Whereas, in 2024/25, these savings might drop to 30 per cent, being $4,500.
FBT rebatable employers
This category includes most other NFPs such as educational institutions, sporting bodies, community service organisations, scientific institutions, cultural, music and arts organisations, associations promoting the development of various resources, but not government organisations.
Employees of these employers may have the opportunity to salary package benefits with an FBT rebate, up to an annual cap. Typically, salary packaging such benefits is currently tax effective to the extent the employee has earnings above $45,000, although the savings are not significant until the employee has earnings above $120,000. From 1 July 2024, the threshold for tax effectiveness increases to $135,000.
What is the example?
Assume:
Salary of $135,000
Salary package $15,900 of credit card repayments
Salary sacrifice for costs and FBT = 15,900 + 15,900 x 1.8868 x 47% x (100 - 47)% = $23,373
In 2023/24:
Marginal tax rate = combination 37% and 32.5%
After-tax receipts from equivalent salary = $23,373 – (15,000 x 37%) – ($8,373 x 32.5%) = $15,101
Saving from salary packaging = $15,900 - $15,101 = $799
In 2024/25:
Marginal tax rate = 30%
After-tax receipts from equivalent salary = 23,373 - 23,373 x 30% = $16,361
Saving from salary packaging = 15,900 – 16,661 = ($761) i.e. the employee would be worse off from salary packaging
Employers paying the full rate of FBT
In addition to the corporate sector, this covers a range of government bodies, public authorities, and many of our universities. Employees of these employers typically only salary package where the particular benefit is afforded an FBT exemption or concession, such as: cars, remote area housing and relocation expenses. For benefits exempt from FBT, similarly to the impact for employees of FBT exempt employers, the change in tax rates will typically mean that a saving will still be available, but of a lesser amount. For benefits afforded concessional treatment, some number crunching may be necessary to determine whether any significant savings continue after 1 July 2024. This will particularly be the case for car benefits.
What is the example?
Assume:
Salary of $110,000
Salary package $22,000 of remote area housing loan interest afforded a 50% FBT concession
Salary sacrifice for costs and FBT = 22,000 + 22,000 x 50% x 1.8868 x 47% = $31,755
In 2023/24:
Marginal tax rate = 32.5%
After-tax receipts from equivalent salary = 31,755 – 31,755 x 32.5% = $21,435
Saving from salary packaging = 22,000 – 21,435 = $565
In 2024/25:
Marginal tax rate = 30%
After-tax receipts from equivalent salary = 31,755 – 31,755 x 30% = $22,229
Saving from salary packaging = 22,000 – 22,229 = ($229) i.e. the employee would be worse off from salary packaging
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