HOW THE ABOLITION OF SUPER SURCHARGE MAY AFFECT SALARY PACKAGING
4 July 2005
Now that the Government have control over both houses, it is almost guaranteed that the superannuation surcharge will be abolished with effect from 1 July 2005. It is important that all employers and employees are aware of the impact that this will have on salary packaging.
The superannuation surcharge was payable at a variable rate on ‘surchargeable contributions’. The surcharge was equal to: surcharge rate x surchargeable contributions.
The surcharge applied only where a taxpayer’s ‘adjusted taxable income’ (ATI) exceeded a minimum dollar amount. Tax planners were understandably interested in having as little of their client’s gross remuneration fall within the definition of ATI.
From a salary sacrifice perspective, this essentially required that any benefits that were taken in lieu of salary, were non-reportable. This is because reportable fringe benefits fell within the definition of ATI. Conversely, those fringe benefits that were excluded (as opposed to exempt) were not take into account in determining ATI.
With the abolition of the surcharge, there will be less reason to confine an employee’s choice of fringe benefits to those that are non-reportable. You should nevertheless bear in mind that the grossed-up value of reportable fringe benefits is still taken into account in a number of other matters such as liability for the medicare levy surcharge. We encourage to speak to the tax advisers to obtain a full understanding of the implications of the abolition of the surcharge.