Issue No. 7 - October/November 2002
by John Rawson
ATO misses chance to clarify salary sacrifice arrangements
Australia’s fringe benefits tax regime is full of complexities, and one of the most vexed areas is that of salary sacrifice arrangements.
There’s enough difficulty without the Australian Taxation Office muddying the waters as how to pay salary-sacrificed employees on leave.
What, for example, if an employee enters into an effective salary sacrifice arrangement (SSA), and subsequently takes leave that accrued prior to the start of the new salary sacrifice period?
Should the leave be paid at the current level of salary and benefits, or at a rate reflecting the employee’s remuneration when the leave was accrued?
In late July, the ATO attempted to clarify the issue through an addendum to a product ruling (TR 2001/10A) that examined the effect of the fringe benefits tax and superannuation guarantee on salary sacrifice arrangements.
Unfortunately, the updated ruling provided little clarification on this important area of employee benefits and remuneration.
As a result, whether employees are entitled to salary sacrifice benefits when taking accrued leave remains unclear.
The addendum to the ruling issued by the ATO states that taking leave prior to the commencement of a salary sacrifice agreement would not cause the SSA to be ineffective.
What business might have been expecting was a clear direction that an employee on leave should be paid at the employee’s current mix of salary and benefits.
This would reverse the ATO’s previous position that the mix of salary and benefits to be paid when leave is taken should be the same as the mix applicable at the time the leave accrued.
This would create a major compliance burden for employers, forcing them to track employees’ pay rates and structures while they accrued leave–before they entered salary sacrifice arrangements.
Ultimately, Deloitte believe...