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The combination of changes to income tax brackets on July 1 and the tightening up of the fringe benefits tax system announced in this month's federal budget will force hundreds of thousands of Australians to review their salary packages.

The Government has removed or reduced concessions on some items and made others harder to get. At the same time people in the $150,000 to $180,000 salary range will be dropping down from a 45 per cent marginal tax rate to 40 per cent, reducing the effectiveness of some fringe benefits.

Budget measures include removal of the fringe benefits tax concession applying to meals provided on an employer's premises.

The exemption for work-related items, such as mobile phones and laptop computers, is being tightened to ensure the exemption applies only where these are used primarily for work purposes. The change will limit the number of items an employee can buy each year.

FBT law will be changed to stop the practice of using salary sacrifice to make payments on jointly held assets, such as an investment property.

Elizma Bolt, employment tax partner at Deloitte Touche Tohmatsu, says it is important to remember that FBT, which is paid by the employer, is always charged at the top marginal rate of 45 per cent plus 1.5 per cent Medicare levy.

"Packaging does not make sense if you are paying a top tax rate of 40 per cent and the benefits you are receiving attract FBT at 45 per cent. You would be better off paying for those things with after-tax income," Bolt says.

Chris Balalovski, corporate counsel at the boutique tax law firm Macquarie Group Services, says: "There are not many effective packaging tools left. Tax planners will be scratching their heads."

In-house dining

Under the old arrangement, meals provided by an employer and eaten on the premises were not subject to FBT. Employees could purchase meal cards using pre-tax salary and save half the cost of their workday food costs.

From May 13 (the date of the budget) in-house dining was made subject to FBT. Employees who have outstanding balances on meal cards will be able to use them with the FBT exemption until March 31 next year. Any new in-house dining arrangements will be subject to FBT.

The measure will not affect subsidised canteens that are provided to all staff and are not part of salary-sacrifice arrangements.

Laptop computers

The rules affecting laptop computers come under the FBT exemption for work-related items such as mobile phones, calculators, personal digital assistants and tools.

Under the old rules, employees could have as many of these items as they wanted with no FBT to be paid by the employer as long as the items were used primarily for work. Laptops were treated differently: employees were limited to one a year and there was no work test.

Under the new rules, the FBT exemption will be limited to one item a year for all work-related items. Laptops will have to be used primarily for work.

Bolt says she expects the work test for laptops to be similar to the one that applies to mobile phones. Most employers ask staff to sign a declaration each year stating that the item is used primarily for work.

Under the old rules, employees could use salary sacrifice to get these items exempt from FBT and have also been able to claim depreciation on them - providing a double benefit. The Government has cut out depreciation deductions for any FBT-exempt work-related items.

Jointly held assets

A neat bit of tax planning involved a couple jointly owning an asset, such as an investment property. One spouse arranges to have all the costs associated with owning the asset paid through salary sacrifice. The tax rules said that where the expense would have been deductible, no FBT liability arises. The result of this was that people use salary sacrifice to cover their interest costs, rates, management fees and repairs at half the real cost.

A further benefit arose because part of any income or capital gain from the asset could be directed to the other spouse who was, presumably, on a low tax rate.

The Government will amend FBT law to ensure that "the full value of a benefit that has been provided to both an employee and an associate in relation to a jointly held asset will be subject to FBT."

Benefits that are still FBT exempt

There are a number of work benefits that are still exempt from fringe benefits tax. They include:

Work-related heath care. The care must be available to all employees. Relocation costs. This includes the cost of travel to a new workplace, including accident insurance and the cost of accommodation and meals during the journey. Also included are the cost of removal and storage of household goods, temporary accommodation and costs involved in the sale or purchase of a house. Taxi travel. Travel must either begin or end at the employee's place of work. Loans. In cases where the employer is in the business of lending money and the loan is made to the employee at a commercial rate, the value of the loan is exempt from FBT. Membership fees. These include subscription to a trade or professional journal, entitlement to use a corporate credit card and to use an airport lounge. Car parking. If on the employer's premises, the benefit may be exempt. Minor benefits. Tax is not charged on benefits that have a taxable value of less than $100. Meal entertainment is not included. Such benefits might include occasional personal use of a taxi, stationery and small gifts.