The measures announced in the Treasurer’s Mid-Year Economic and Fiscal Outlook 2012-13, released on 22 October 2012, are not likely to have a significant impact on executive remuneration. However, remuneration committees should be aware of the possible impact on the broader employee population.
The measures include the removal of the concessional tax treatment for salary sacrificed “in house” fringe benefits, which the government has justified the change on the grounds that it improves fairness for employees of companies that do not offer these arrangements..The impact will be proportionally much greater on lower-paid employees than on senior executives, however.
The in-house FBT concession (see section 62 of the Fringe Benefits Tax Assessment Act 1986 HERE) has allowed employers to reduce the aggregate taxable values of the in-house fringe benefits they provide to an employee by $1,000 in each FBT year. Broadly speaking, in-house fringe benefits are benefits that are identical or similar to the goods or services an employer provides to customers in the ordinary course of their business, although the concession applies only to:
- In-house expense payment fringe benefits
- In-house property fringe benefits
- In-house residual fringe benefits and
- Airline transport fringe benefits
Employers are not required to keep records of the in-house benefits provided to individual employees if the value of the benefits provided in the year is not expected to exceed the $1,000 limit.
Somewhat inconsistently, free or discounted goods and services for which employees pay from after-tax income are apparently not affected by this change.
The government anticipates that abolition of the in-house FBT concession for benefits acquired through a salary sacrifice arrangement will “save” $445 million between 2012/3 and 2015/6. This is one of largest revenue raising measures in the budget, inferring that the cost on employers applying this benefit will be significant. It can also be assumed that many employees may be affected (i.e. about half a million).
These benefits are the additional “hooks” that enable some employers to more effectively attract and retain staff at relatively low cost. Often the benefits are attractive to family members other than the employee, facilitating the employers’ attractiveness for others close to the employee, for better “work-life integration”. Given their effectiveness as hooks to retain employees, employer alternatives may be limited to:
- Offering partial salary sacrifice to limit FBT costs
- Eliminating salary sacrifice but offering company products at a significant discount
- Suffering the FBT impost in its entirety
- Eliminating the benefit coincident with annual salary review timing
The MYEFO papers are available HERE.© Guerdon Associates 2023 Back to all articles