• Material variation - change of salary packaging provider or temporary suspension of salary packaging arrangement

    Issue

    Government's salary packaging arrangements allow employees to transition between salary packaging service providers as well as suspend and resume arrangements. Clarification of the impact of these actions after 22 October 2012 is required to assist with the implementation of the proposed in-house benefit reforms.

    Background

    Government employees can enter into a salary packaging participation agreement (SPPA) with their employer. The SPPA contains provisions that allow for a transition between salary packaging service providers and for the suspension and resumption of the arrangements (e.g. where an employee takes long service leave).

    The draft legislation and Explanatory Memorandum (EM) do not appear to set out specific guidance in relation to such transitions and suspensions.

    The draft legislation does set out what constitutes an 'existing salary packaging arrangement' at 13(3) - 'a salary packaging arrangement entered into by the employer and employee'.

    Further, the EM states at 7.44 that an 'existing salary packaging arrangement' means a salary packaging arrangement 'that was both agreed to (employer and employee agree to conditions of arrangement) and was entered into (the arrangement was given legal force) before 22 October 2012'.

    It is noted, however, that a material alteration or variation to an existing arrangement could cause the transitional provisions to cease.

    Paragraph 7.47 of the EM states that 'In [sic] determining whether an alteration or variation is material to the existing salary packaging arrangement, regard must be had to the particular wording of the agreement and what constitutes material will often depend on the facts and circumstances of the arrangement'. It is further noted that the list of what could be considered material at 7.48 of the EM is non-exhaustive.

    Industry view/suggested treatment

    The draft legislation and EM appear to emphasise an agreement between the employer and employee for existing salary packaging arrangements. It is therefore considered that any course of action that is permitted in an SPPA entered into before 22 October 2012 will not constitute a material alteration or variation to an existing arrangement.

    Technical references

    Tax Laws Amendment (2012 Measures No. 6) Bill 2012

    Tax Laws Amendment (2012 Measures No. 6) Bill 2012 Explanatory Memorandum

    ATO Response

    This agenda item concerns the effect (if any) a change of salary packaging provider, or a temporary suspension of the salary packaging arrangement will have on the application of the transitional provisions applying to the in-house benefit reforms.

    As Royal Assent had not been received at the date of the meeting, the ATO advised it was unable to provide indicative interpretative advice at the meeting.

    However, there was a general discussion about the transitional arrangements and the structure of salary packaging arrangements.

    As set out in the agenda item, sub item 13(3) of Tax Laws Amendment (2012 Measures No. 6) Bill 2012 defines an existing salary packaging arrangement to be a salary packaging arrangement entered into by the employer and employee before 22 October 2012. That is, it is an arrangement between the employer and employee which will usually be separate to the arrangement between the employer and the salary packaging service provider.

    From the information provided in the agenda item, it is not clear what effect (if any) a change in the salary packaging provider or a suspension of the salary packaging arrangement will have on the agreement between the employer and employee. Therefore, it is not possible to say whether either of these events will cause an existing salary packaging arrangement to be varied in a material way.

      Last modified: 20 May 2013QC 34349