From 1 July 2014, the Medicare Levy will increase from 1.5% to 2%. As a result the top marginal income tax rate plus Medicare Levy will increase from 46.5% to 47%.
The Fringe Benefits Tax (FBT) Rate is set to match the top marginal tax rate plus Medicare Levy (47%). While the Medicare Levy will not change until 1 July, the FBT rate is planned to change to 47% from 1 April 2014 (the start of the next FBT year).
We expect the FBT gross up rates to change as follows:
- Type 1 (GST inclusive) rate will increase from 2.0647 to 2.0802
- Type 2 (GST exclusive) rate will increase from 1.8692 to 1.8868
This will also affect the 'FBT-free threshholds' for salary packaging by Public Benevolent Institutions, hospitals and similar as the thresholds should decrease.
While businesses will not pay the increased level of tax until they lodge their 2015 FBT return, businesses that offer salary packaging to employees need to start now to plan how the change in FBT rate will effect their payroll after 1 April 2014.
If employees are salary packaging benefits, the amount deducted from payroll should change to reflect the increase in FBT. For employees who 'cash out' the FBT, there should be no change. However, for employees who indirectly pay FBT as part of their package should expect their after tax pay to decrease.
Please contact Jamie Towers or your usual Hanrick Curran advisor if you wish to discuss how these changes will affect your business.