Assessing salary sacrificing/salary packaging arrangements for employment income 108-07010050

A customer, or their partner, advises they are in a salary sacrificing arrangement with their employer. Check with the customer, or their partner, as to the type of non-cash benefit received.

If the arrangement is for child care fees, eligibility for Child Care Subsidy (CCS) may be affected.

Is this a new salary sacrificing arrangement or an update to a previously advised salary sacrificing arrangement?

• New, go to Table 2
• Update, go to Step 2

An update can be made to a previously advised salary sacrificing arrangement when the assessment method is documented and the change the customer and/or their partner is advising is not a change of the arrangement but a variation in dollar value only. For example, change from $30 a pay to $50 a pay.

No verification is required to be provided unless the change is a change in arrangement or the customer cannot provide accurate details. If verification is needed, see Requesting information (CLK). Procedure ends here until the documents are provided.

If the salary sacrifice arrangement is for:

• Personal superannuation, go to Step 3
• Other benefits, including contributions to a third party superannuation account (Fringe benefits), go to Step 4

If the gross income is recorded using a continuous frequency

• Ensure either the 1WE or 2WE exception or Pension Monthly Exception Rule is still met
• If the customers gross pay has changed, that is, the amount before any salary sacrifice deductions, update the new income amount, see Determining the Date of Event for employment income and Recording and correcting employment income details
• If the customer's gross pay has not changed, that is, the amount before any salary sacrifice deductions, no further action is required
• Annotate the original assessment method DOC explaining the changes and any action taken

If the gross income is recorded using a variable frequency

• Advise the customer to continue to report their gross income amount, that is, the amount before any salary sacrifice deductions, on their next reporting date, see Determining the Date of Event for employment income and Recording and correcting employment income details
• Annotate the original assessment method DOC explaining the changes and any action taken

Procedure ends here.

The fringe benefits should be recorded as a separate employer on the EAPP table/screen (for example, ‘Fringe benefit work car’). This is because the amount must not be included with any other variable/ongoing income from employment (even if received from the same employer). Do not record an ABN for the separate employer.

Note: when STP employment income data is reported via Single Touch Payroll (STP), the non-grossed-up amount of income for the fringe benefit will not be recorded separately from the customer’s other income types. This is intended, a separate employer is not required.

If the fringe benefit income is recorded using a continuous frequency

• Ensure either the 1WE or 2WE exception or Pension Monthly Exception Rule is still met
• If the sacrificed amount has changed, the new non-grossed-up amount should be recorded
• The customer’s post-sacrificed gross wage should also be reported. See Background for more information
• See Determining the Date of Event for employment income and Recording and correcting employment income details
• Annotate the original assessment method DOC explaining the changes and any action taken

If the fringe benefit income is recorded using a variable frequency

• Advise the customer to report the pre-sacrificed gross wage. See Background for more information
• See Determining the Date of Event for employment income and Recording and correcting employment income details
• Annotate the original assessment method DOC explaining the changes and any action taken

Procedure ends here.

Check the type of arrangement to determine the verification required.

For salary sacrifice to personal superannuation, go to Step 2

For salary sacrifice to fringe benefits, go to Step 6

If the customer or their partner’s payslip shows the total gross income, that is, the amount before any salary sacrifice deductions, this is sufficient.

If their payslip does not show this:

• the customer, or their partner, should provide a copy of the salary sacrifice agreement or a statement from their employer on the employer’s letterhead
• This should show the amount sacrificed, the name of the fund and the member on whose behalf the payments are made

Assessment of income depends on whether the employee is making the contributions or the employer is making contributions due to obligations. For example, under the Superannuation Guarantee Contribution (SGC) requirements or industry award.

See Requesting information (CLK) if more verification is required and procedure ends here until the documents are provided.

Where the:

• employer is making contributions, go to Step 3
• employee is making contributions (salary sacrifice), go to Step 4

Employer contributions:

• are not counted as income, regardless of the employee's age, if the employer contributions are required as part of their SGC obligations, award, collective workplace agreement or superannuation fund rules. SGC rates can be found on the ATO website
• will be counted as income if the employer contributions are in excess of the SGC and the employee has the capacity to influence or could have reasonably expected to have or have had capacity to influence. Only the excess amount is counted as income

Note: from 1 July 2013, there is no longer a maximum age limit for SGC. Prior to 1 July 2013, all employer contributions to superannuation for employees aged 70 and over were considered additional contributions.

Employer contributions above the SGC

Excess superannuation contributions above the SGC requirements or industry award would not be assessable income if:

• a person is simply an employee of a small business who:
• has no involvement in the running of the business
• exerts no control or influence over its operations
• all the employees of the small business receive employer contributions at more than the SGC rate

There may be situations where the arrangement is not described as a salary sacrifice arrangement, but any amount contributed above the SGC are still assessable as income. For example, a small family run business agrees to pay its employees 15% employer superannuation contributions, but the only employees of the business are family members who share control of the business. In such a situation, the excess amount above the SGC rate would be assessable as employees could reasonably be expected to have the capacity to influence the rate of employer superannuation contributions they are receiving.

In some cases, an employer may contribute to their employee’s super, not as part of a salary sacrificing arrangement with a specific employee but as part of a wider business practice in which each employee benefits from. For example, paying 14% rather than 12%. This is done at the discretion of the business. In situations where the employees have no capacity to influence that decision, that is, they do not exert any control of influence over the running of the business (in contrast to the family business example above), the additional superannuation amount paid by the employer above the SGC is not income for social security purposes.

Where an employee directly enters into a superannuation salary sacrifice arrangement with their employer, the employee does have the capacity to influence how much of their salary is paid to them, and therefore the salary sacrificed amounts are counted as income.

Businesses run through private trusts and private companies

If the person is controlling the private company or trust and is paying themselves as an employee of the entity, then they could be expected to have the capacity to influence the rate of employer contributions. Any employer contributions above the SGC rate would be assessable income.

Assessable income

The assessable income amount is the person’s gross employment income plus the amount of contribution to superannuation above the SCG where the employee has the capacity to influence or could have reasonably expected to have or have had capacity to influence.

Superannuation statements, personal tax returns and payment summaries must be requested to determine the applicable SCG amount. Where the SCG information is not available, the excess superannuation calculator should be used to determine the contributions to be assessed as income.

For instructions on recording assessable income determined, go to Step 5.

From 1 July 2009, any amount of salary voluntarily sacrificed into superannuation is income for social security purposes for all income support payments and those claiming a Low Income Health Care Card (LIC).

The assessable income amount is the person's pre-sacrificed gross wage. See Background for more information.

For instructions on recording assessable income determined, go to Step 5.

Record all employment details via the Earnings and Reporting workflow. Note: if the workflow is unavailable, manually update all details on the Employment Income Paid Details (EAPP) table/screen.

• Ensure the total of any employee's salary sacrificed amounts and/or any assessable employer's contributions are included in the total gross income recorded on the EAPP table/screen
• When the customer is over Age Pension age, any contributions made to a superannuation fund after the date of grant add to the balance in the fund as they are made and thus increase the value of the investment that is subject to deeming. This includes contributions made by the customer or the customer's employer (including salary sacrifice arrangements)
• See Assessing superannuation for more information on how to update an existing or add a new accumulation superannuation account.
• There is no deduction allowed against business income for sole traders or partners in a partnership of any age for contributions into their own superannuation fund.

See Recording and correcting employment income details for assistance with finalising the Earnings and Reporting workflow.

Go to Step 12.

Salary sacrificed amounts used to purchase benefits other than personal superannuation are considered a valuable consideration. This includes income salary sacrificed to a third party's superannuation account. The amount of fringe benefits taken into account in determining a customer’s or their partner’s entitlement is the non-grossed-up amount of fringe benefits.

Sacrificed amounts used to purchase a fringe benefit are assessed differently to fringe benefits received on top of a salary paid. See Assessing fringe benefits for Social Security income test purposes for information on assessing fringe benefits received on top of a salary paid.

If advice of the fringe benefits is reported:

• through Single Touch Payroll (STP), go to Step 7
• through non-STP advice, go to Step 9

Employers may report fringe benefits for a customer through STP as:

• a lump sum representing the total RFB amount following the Fringe Benefits Tax (FBT) year (1 April to 31 March) as a lump sum through STP for taxation purposes,
• individual pay events throughout the FBT year

Staff must ask the customer for details about the RFB to identify if the RFB represents:

• a salary sacrifice arrangement
• a benefit provided in addition to the employee’s salary and wages, or
• both (more than one benefit is purchased/provided)

Any Reportable Fringe Benefits (RFB) reported by an employer via STP:

• will prefill as the grossed-up amount on the EMGI screen in the Earnings and Reporting workflow in Process Direct
• may require the customer to adjust the start and end date of the period they’ve had use of the benefit (particularly where RFB is reported as a lump sum amount for the full FBT year)
• if accepted, will be automatically adjusted to the non-grossed-up amount by the system and the adjusted figure will be recorded on the EAPP table/screen
• where the RFB amount is a result of a salary sacrifice arrangement only, then the STP RFB component is to be adjusted to zero, so that the value of the benefit is not assessed twice

For further information about STP processes, see Single Touch Payroll (STP) processing

Staff must ensure:

• Fringe benefits provided in additional to an employee’s salary and wages must be assessed from when the person first receives/has use of the benefit. Where the employee has not previously advised of the fringe benefit, an overpayment may be created
• Lump sum amounts prefilled through STP should not be assessed as income unless the person actually receives the benefit as a lump sum

Go to Step 8.

For fringe benefits reported though STP, a separate employer entry on the EAPP table/screen is not required as separate fringe benefits amounts are displayed on the EMGI screen.

Customers will be also asked whether Free Accommodation is included in the Reportable Fringe Benefit amount.

• If they answer “Yes”, the amount per fortnight is requested
• This amount is exempt income and is 100% excluded from the final calculation

See Recording and correcting employment income details for assistance with finalising the Earnings and Reporting workflow.

Go to Step 12.

Ask the customer and/or their partner to provide evidence of their fringe benefits (reportable and non-reportable). This could be in the form of:

• a letter from the employer
• a payment summary that reflects the current arrangement
• their latest individual income tax return

The letter must state either the non-grossed-up or grossed-up amount of fringe benefits.

• The non-grossed-up amount is the actual cost to the employer of providing the fringe benefit
• The grossed-up amount is the amount that would have been received in salary in order to pay for the benefit received in after tax dollars
• A person's payment summary (group certificate) shows the reportable fringe benefits total, only if the non-grossed-up amount is more than $2000 ($1000 before 1 July 2007)

Note: the information provided on a payslip varies from employer to employer. A payslip may show gross taxable income and not include fringe benefits amounts.

See Requesting information (CLK) if more verification is required and procedure ends here until the documents are provided.

Has the customer or their partner provided evidence that lists the non-grossed-up amount of fringe benefits received?

• Yes, go to Step 11
• No, go to Step 10

If the customer and/or their partner has provided a payment summary or other evidence with the grossed-up amount of fringe benefits, calculate the non-grossed-up amount using the method below:

Non-grossed-up amount = grossed-up amount x (100% - Fringe Benefit Tax rate).

Go to Step 11.

Record all employment details via the Earnings and Reporting workflow in Process Direct.

Note: if the workflow is unavailable, manually update all details on the Employment Income Paid Details (EAPP) table/screen.

Service Officers must code receipt of the fringe benefit component as a separate employer (even if received from the same employer) and clearly identify the fringe benefit in the Description on the EAPP table/screen (for example, 'Fringe benefit work car'). The fringe benefit amount must not be included with any other variable/ongoing income from employment.

Do not record an ABN for the separate employer.

• Record the non-grossed-up amount against the separate fringe benefit employer recorded
• The customer's post-sacrificed gross wage should also be reported. See Background for more information

See Recording and correcting employment income details for assistance with finalising the Earnings and Reporting workflow.

Go to Step 12.

Record details of the arrangement and the assessment method used in a display on access DOC using reason NSE – non-standard earning assessment. See Creating, reviewing and deleting documents (including Fast Notes and DOA DOCs) if assistance is required.

If the customer is a statement reporter, ensure they are aware of the correct amount of gross income to report each fortnight, for both their employment income and any salary sacrifice arrangements.

Where an overpayment is created due to the customer not previously providing advice of the fringe benefit, see General notification provisions and exceptions and Notification Handler (NOHL)

For customers receiving family assistance, check their annual income estimate is reasonable and request a revised estimate, if necessary.

If a customer or their partner has a salary sacrifice arrangement with their employer for child care fees, their eligibility for Child Care Subsidy (CCS) may be affected.

Procedure ends here.