Salary sacrifice problem areas
Calculating superannuation guarantee on salary sacrifice
From 1 July 2020, new rules came into effect to ensure that an employee's salary sacrifice contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.
Previously, some employers were paying SG on the salary less any salary sacrificed contributions of the employee. Employers could choose whether or not to include the salary sacrificed amounts in ordinary time earnings (OTE). That is, some employers were reducing the amount of SG payable by excluding the salary sacrificed amounts from the ordinary time earnings calculation.
Now, the SG contribution is 9.5% of the employee's 'ordinary time earnings (OTE) base'. The OTE base is an employee's OTE and any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement.
Employee contributions for FBT purposes and salary sacrifice
An issue that frequently causes confusion is the difference between the employee salary sacrificing in order to receive a fringe benefit and making an employee contribution towards the value of that fringe benefit.
To be an effective salary sacrifice arrangement (SSA), the agreement must be entered into before the employee becomes entitled to the income (ie. before the period in which they start to perform the services that will result in the payment of salary etc.).
Where an employee has salary sacrificed on a pre-tax basis towards the fringe benefit provided – laptop, car, etc., they have agreed to give-up a portion of their gross salary on a pre-tax basis and receive the relevant fringe benefit instead.
As a starting point, the taxable value of the fringe benefit is the full value of the expense paid by the employer. The salary sacrifice arrangement does not reduce the FBT liability for the employer.
The employer recognises a lower cost of salary and wages provided to the employee as their 'cost saving', which results in lower PAYG withholding and superannuation contribution obligations, but they still recognise the full value of the fringe benefit as part of their taxable fringe benefit which is subject to FBT.
The employee recognises that they have a reduced amount of salary and wages, and a non-cash benefit in the form of the fringe benefit.
Car parking under scrutiny
Important impending changes
A controversial draft ruling from the ATO could expand the scope of the FBT rules dealing with car parking benefits. This is because the draft ruling changes the ATO's view on what constitutes a commercial parking station. Where an employer provides:
- Car parking facilities for employees within 1km of a commercial parking station, and
- That commercial car park charges more than the car parking threshold ($9.15 for the year ended 31 March 2021),
a taxable car parking fringe benefit will arise unless the employer is a small business and able to access the car parking exemption.
The draft ruling is not finalised as yet but the ATO has stated it intends to apply the new definitions from 1 April 2021. If you provide car parking facilities to team members, it is important that you either:
- Are certain you are able to access the small business exemption (which has a more generous turnover threshold of less than $50m from 1 April 2021 onwards); or
- Understand the implications of the ruling to the car park facilities you provide.
It can be difficult to ensure records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.