Loophole makes it easy to avoid Budget reform pain

THAT was quick. Money-savvy Aussies have already found a loophole to avoid being stung by the government’s controversial new debt levy.

TREASURER Joe Hockey billed the debt levy as a “fair” Budget reform aimed at spreading the deficit repair job evenly, but those set to be hit have already found a way to get around the Government’s quick revenue raiser.

A loophole allows high-income earners targeted by the levy to tweak their incomes so that the debt tariff does not apply.

The extra two per cent tax for those earning more than $180,000 and changes to the FBT (Fringe Benefits Tax) have opened an opportunity to further minimise tax.

Tax experts say it only takes a bit of clever salary packaging to avoid paying the deficit levy for an entire year of the three it is supposed to be in place.

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Mr Hockey wants to impose the levy from July, taking the top marginal tax rate to 49 per cent.

But the tax on fringe benefits will stay at 47 per cent until April, presenting a relatively simple opportunity that tax experts have picked up on swiftly.

They say people can increase the non-cash-benefits component of their package to bring their taxable income to below the $180,000.

Money moved into the package is money that does not attract the 2 per cent levy.

“Other than considering opportunities provided by salary packaging, no doubt taxpayers will also be considering other strategies such as negatively gearing investments, like residential and commercial property,” says CPA Australia head of policy Paul Drum.

“The same strategy could equally be applied to other investments, such as share portfolios, but investors should seek professional financial advice before doing anything,” Mr Drum said.

Those high-income folk probably don’t need to find a loophole to claw back cash lost under a debt levy.

Finance pundits do not expect a salary packaging rush.

But it is a legal loophole, and an easy one to incorporate into your money management with the right advice.

Treasury forecasts had projected the levy would raise $3.1 billion for Government coffers.

Regardless of potential loopholes, the Tax Institute’s Robert Jeremenko has told ABC News this week that the levy was not a good idea.

“It’s not raising that much money, but what it’s doing is placing more reliance on income tax,” Mr Jeremenko said.

The Henry Tax Review said we should, as a government and as a nation, be relying less on income tax and more on taxes like the GST. So it’s the wrong way to be moving the system.”