Salary Packaging will reduce your Family Tax Benefit unless you take action now!

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Centrelink changes the way Salary Packaging is assessed

From the start of 2017 Centrelink is changing the way they calculate income when working out payments like family tax benefit.  By default, they will inflate your income to well over what you earn if you salary package.  Fortunately fixing the problem is easy, but you do have to act fast.

 

How it worked pre 1/1/2017:

 

If you earned $100,000 and packaged $9010 to a home loan, on your group certificate at the end of the year you would see income of $90,990 and Reportable Fringe Benefits of $17,000.

From that Centrelink would assess your income at $100,000 because that would only count 51% of the reportable fringe benefit ($90,990 + ($17,000 * 51%))

This meant that salary packaging an item like a home loan or rent did not affect family tax benefit.

 

 

How it will work from 1/1/2017:

 

From next year Centrelink will count 100% not 51% of reportable fringe benefit, unless you tell them you work for QLD Health.  So if you do nothing and you earn $100,000 gross, then they will see your income as $90,990 + $17,000 or $107,990.  This could reduce your payments significantly.

 

 

What if I work for QLD Health or another public benevolent institution (PBI)?

 

Fortunately, there is an exemption for this change for QLD Health and other PBI employees.  They have created a new category of income called “exempt employer reportable fringe benefits".  You just have to tell Centrelink that your reportable fringe benefits are from an exempt employer and they should go back to only including 51% of your reportable fringe benefits towards your income.

 

If that is the case, should I stop Salary Packaging?

Generally no.  If you stop salary packaging at Queensland Health then your income assessment for Family Tax Benefit will not be viewed any lower.  It works like this:

With Salary Packaging Without Salary Packaging
Gross Income $100,000 $100,000
Minus Money Flowing through RemServ $9,203 $0
Taxable Income $90,796 $100,000
Tax $23,356 $26,946
Net $67,439 $73,053
Money coming form RemServ $9,010 $0
Money hitting bank $76,449 $73,053
Income for FTB = Taxable Income + Fringe Benefits * .51 if coming from an exempt employer 90796 + 17000*.51 = $99,806 $100,000

Salary packaging reduces your income for income tax but maintains it for Family Tax Benefit at about the same amount.

 

How do I tell Centrelink that my reportable fringe benefits are exempt?

 

There are many ways to tell Centrelink this, although their phone app seems the easiest.

This video below provides a good demonstration:

UPDATE: Centrelink removed the video showing how to make this change with their app.  I am currently unsure if it can still be done through the App.  Regardless, if your Fringe Benefit comes from an employer like QLD Health, then you should ensure that the Fringe Benefit is being categorised as an "Exempt Employer Fringe Benefit", not just a "Reportable Fringe Benefit.  Centrelink's policy can be found here: http://guides.dss.gov.au/family-assistance-guide/3/2/3

 

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Until the end of January GPA Financial Planning is also offering free phone reviews of your salary packaging set up to identify if your set-up could be improved.

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Article by Matt Boxer - GPA Financial Planning

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