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2008 Budget: Salary Sacrifice Rethink - Eureka Report insert

May 14, 2008

2008 Budget: What you need to know

Scott Francis has contributed the following commentary to Eureka Report's 2008 Budget analysis.

Salary sacrifice rethink
Scott Francis

Salary sacrificing is an important personal finance strategy for most people, but last night's budget will see areas of that strategy having to be rethought.

At the top of many financial strategies are the benefits gained from salary sacrificing to superannuation. Under current legislation, the "income" that is assessed for many Government entitlements excludes the value of salary sacrificed superannuation contributions. For example, if you were earning $70,000 and salary sacrificed $20,000, then your income would be assessed as being $50,000.

An example of this in practice is the Government Superannuation Co-contribution. A person earning $70,000 is not eligible to receive a Government Co-contribution. However, if they salary-sacrificed $20,000 of their income to superannuation, their income would be assessed as being $50,000 for Government Co-contribution purposes and they would receive a partial Government Co-contribution. Salary-sacrificed contributions to superannuation will now be included in the definition of income - for people below the age pension age - in assessing the Government Superannuation Co-contribution, family assistance and child support.

Another salary sacrifice change that has taken immediate effect is the fringe benefits tax (FBT) ruling related to electronic items such as laptops and mobile phones. There is now a requirement that these items have to be provided by employers for work purposes. Therefore, work-related items such as laptops that are primarily for personal use are no longer exempt from FBT.

FBT is generally calculated at the highest marginal tax rate, so once an item is subject to FBT it no longer makes sense to salary sacrifice to receive it.

Hungry employees also face disappointment with a change to FBT rules that will see the end of meal cards, which have become popular.

Separately, there were changes to the Senior Australian Tax Offset (SATO). This is an offset that reduces the amount of income tax that a person of age pension age would pay. You do not have to be receiving an age pension to benefit from the SATO, you just have to be that age and eligible for an age pension were it not for the income or assets test.

The budget saw the SATO increase such that a single person can earn $28,867, and a couple $49,320, without paying any tax. From a financial strategy point of view, the SATO means people can still have some assets outside of superannuation and pay no tax in retirement (from age pension age).