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Henry Review: The impact
on super and salary packaged cars
Industry commentators have given a mixed
reception to the Government response to the
Henry Review, particularly in regards to
proposed changes to superannuation and
fringe benefits tax (FBT).
According to Pitcher Partners superannuation
director Brad Twentyman, employers will have
to find the extra 3.5% to fund the increased
superannuation contribution following the
Government's decision to increase compulsory
employer superannuation contributions from
9% to 12% over a six-year period starting on
1 July 2013.
Twentyman said the cost to business will be
in the order of $30bn to $35bn a year and
the Government stands to collect in the
order of $4bn to $5bn a year in extra
contributions tax, with the Government's
"contribution to the arrangement in
isolation amounting to zero unless the
company tax cut is factored in".
"The concept that increasing compulsory
contributions from 9% to 12% will provide a
great benefit to lower income workers is
questionable.
"The increase in cost to the employer will
most likely lead to an offsetting reduction
in the employee's wage or an increase in
costs which will make its way through to
higher prices. Either way the employee is
likely to be worse off each year through
their working life."
Twentyman said the higher compulsory
contribution rate should result in the
employee having more superannuation when
they retire. However, because of the income
and/or assets means tests, the employee will
likely receive less age pension as a direct
result of their higher superannuation
balance. He said they will most likely be
better off in retirement, but not by nearly
as much as is portrayed.
"Setting a maximum balance of $500,000 to
access the higher concessional contribution
rate of $50,000 from 1 July 2012 should also
be questioned.
"The better response would have been for the
Government to admit that from the
perspective of someone over age 50, the
decision last year to halve concessional
contribution caps went too far. Including a
maximum balance test just adds undue
complexity to the system."
Salary packaged cars
It is also likely that changes to vehicle
FBT proposed in the Henry Review could
impact a significant number of businesses
and their employees.
Mercer estimates that up to 84% of companies
offer some form of vehicle benefit to their
staff (Mercer Australian Benefits Review
2009), and the Australian Fleet Lessors
Association (AFLA) March 2010 data suggests
there are over 480,000 company
provided/salary packaged vehicles in
Australia.
Henry has suggested a number of changes that
would affect these salary packaged and
company provided cars, including a shift
away from the complicated FBT formula which
holds increased benefits for those who drive
more kilometres, to a flat 20% FBT rate,
regardless of mileage.
Danny Wilson, director of sales and
marketing for specialist novated lease
provider nlc, has commented favourably on
this proposed change.
"We believe a flat 20% FBT rate would be
beneficial in three ways," Wilson said.
"It would be good for employers, as it
simplifies FBT, reducing the administrative
burden of managing packaged vehicles and
making the lease termination process more
straightforward.
"It would be good for employees, as it
retains and broadens the existing FBT
benefit, making it fairer and more inclusive
by providing access to those individuals who
do not drive sufficient kilometres to
benefit under the current legislation.
"Finally, it would be good for the
environment, as it removes any incentive to
increase vehicle use simply to reduce FBT,
and thereby reduces a disincentive for
people to use public transport in their
daily commute."
At this stage, the Government has not
commented on whether it will incorporate the
recommended change to a flat 20% FBT rate in
the Budget, due for release on 11 May.
Source:
Human Capital Magazine |
