Draft Taxation Determination

TD 92/D143

Income tax: what are the tax implications of a 'salary sacrifice' for an employee?

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FOI status:

draft only - for comment

Preamble

1. A 'salary sacrifice' occurs if an employee forgoes part of the salary he or she would otherwise receive, in return for other benefits.

2. In a salary sacrifice:

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the employee's income tax is based on the reduced amount of salary;

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tax instalment deductions are based on the reduced amount of salary;

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the benefit received is not subject to income tax in the hands of the employee; and

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the employer may be subject to fringe benefits tax on the value of the benefit.

Example ( a)

(a) Arnold renegotiates an award or contract to reduce his salary entitlement from $50,000 to $45,000 on the condition that his employer provides free accommodation.

In this example Arnold's salary for income tax purposes is $45,000.

Example (b)

(b) Jan earns a yearly salary of $50,000 and rents accommodaton from her employer for $5,000 per year. The rent is deducted by her employer directly from her salary .

Jan's salary for income tax purposes remains unchanged at $50,000.

Commissioner of Taxation
17/09/92

This Draft Determination has been withdrawn by TD 92/D143W

References

ATO references:
NO D/92/0006

Subject References:
salary sacrifice

Legislative References:
ITAA 19
ITAA 25
FBTAA 47