On 22 October 2012, the Government announced as part of the 2012-13 Mid-Year Economic and Fiscal Outlook that the concessional tax treatment of in-house fringe benefits would be removed if they are accessed through a salary sacrifice arrangement.
This announcement included generous transitional arrangements for salary sacrifice arrangements that were entered into prior to 22 October 2012. These salary sacrifice arrangements will be able to continue to access the concessional tax treatment for a further 17 months, until 31 March 2014.
Salary sacrifice arrangements that were entered into on or after 22 October 2012 will not be able to access the transitional arrangements. The new rules will apply to these salary sacrifice arrangements from 22 October 2012.
The transitional rules are intended to cover binding arrangements that were agreed to prior to 22 October 2012. This will be satisfied if both the offer by the employer and the acceptance by the employee occurred prior to 22 October 2012. There is no requirement for the actual reduction of salary and wages, or the provision of goods and services, to occur prior to 22 October 2012.
Examples
- Prior to 22 October 2012, an employee elects through an online application form to sacrifice a set amount of pre-tax salary each pay period which accrues in their salary packaging account. Once the employee buys a qualifying good or service, a claim is submitted for a reimbursement of expenses from the accrued funds in the account. The transitional rules will apply to goods and services purchased and reimbursed between 22 October 2012 and 31 March 2014, because the employee agreed to the arrangement prior to 22 October 2012.
- An employer offers a salary sacrifice arrangement to employees, where the benefits will be available to employees during the months of December 2012 and January 2013. The pre-tax salary deductions do not commence until the employee has submitted a claim for expenses incurred during the relevant period. An employee accepts the offer prior to 22 October 2012. The transitional rules will apply to this arrangement, because the employee agreed to the arrangement prior to 22 October 2012.
- An award or an enterprise agreement that came into effect prior to 22 October 2012 allows employees to take up a salary sacrifice arrangement with their employer at any time during the period of the award. An employee accepts the offer prior to 22 October 2012. The transitional rules will apply to goods and services purchased and claimed between 22 October 2012 and 31 March 2014, because the employee agreed to the arrangement prior to 22 October 2012.
Any material variation to an existing salary sacrifice arrangement will result in the new rules applying. This means that if an employee commences a new job after 22 October 2012 and continues a salary sacrifice arrangement that had commenced with a previous employer prior to 22 October 2012, the new rules will apply.
For further details about this reform, please see Schedule 7 of the [Tax Laws Amendment (2012 Measures No. 6) Bill 2012] and its [explanatory memorandum].