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

This document outlines how salary sacrificing arrangements are assessed for pension and allowance Income Test purposes.

Assessing salary sacrifice arrangements for employment income

Step	Action
1	Advice of salary sacrificing arrangement + Read more ... 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 Step 5 Update, go to Step 2
2	Update to a previously-advised salary sacrificing arrangement + Read more ... 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 the salary sacrifice arrangement is for: Personal superannuation, go to Step 3 Fringe benefits, go to Step 4
3	Update to a previously-advised salary sacrificing arrangement for personal superannuation + Read more ... If the 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 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.
4	Update to a previously-advised salary sacrificing arrangement for fringe benefits + Read more ... The fringe benefits should be recorded as a separate employer on the EAPP 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). 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 new non-grossed-up amount against the fringe benefit employer entry on their next reporting date 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 Procedure ends here
5	Type of arrangement and verification required + Read more ... Check the type of arrangement to determine the verification required. For salary sacrifice to personal superannuation: 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 Go to Step 6 For salary sacrifice to fringe benefits: If the customer or their partner’s payslips indicate if the sacrificed amount is the grossed-up or non-grossed-up amount, 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 type of benefit received and either the grossed up or non-grossed-up amount Go to Step 10
6	Salary sacrifice arrangement for personal superannuation + Read more ... 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. Where the: employer is making contributions, go to Step 7 employee is making contributions (salary sacrifice), go to Step 8
7	Employer contributions to superannuation + Read more ... 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 12% rather than 10%. 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 9.
8	Employee contributions to superannuation (salary sacrifice) + Read more ... 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 9.
9	Recording assessable income + Read more ... 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) 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 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) Finalise the activity Record details of the salary sacrificing/employer contribution arrangement and the assessment method being used in a display on access DOC If the customer is a statement reporter, ensure they are aware of the correct amount of gross income to report each fortnight, that is, the amount before any salary sacrifice is made Note: 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 Determining the Date of Event for employment income and Recording and correcting employment income details for assistance with recording assessable income. Procedure ends here.
10	Salary sacrifice arrangement for fringe benefits + Read more ... Salary sacrificed amounts used to purchase fringe benefits are considered a valuable consideration. They are included as income for all income support payments. 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 the grossed-up amount has been provided, calculate the non-grossed-up amount using the method below: Non-grossed-up amount = grossed-up amount x (100% - Fringe Benefit Tax rate) If the non-grossed-up amount has been provided, no further action is required. Go to Step 11
11	Recording salary sacrifice arrangement for fringe benefits + Read more ... 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) 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 screen (for example, 'Fringe benefit work car'). The fringe benefit amount must not be included with any other variable/ongoing income from employment. 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 other income types. This is intended and a separate employer is not required. 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 Finalise the activity Record details of the salary sacrificing arrangement and the assessment method being used in a display on access DOC If the customer is a statement reporter, ensure they are aware of the correct amount of gross income to report each fortnight Note: 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. See Determining the Date of Event for employment income and Recording and correcting employment income details for assistance with recording assessable income.