Material variation - employer changes to salary packaging arrangement
The Government from time to time updates the terms and conditions set out in salary packaging participation agreements (SPPA) entered into by employees and employers. Clarification of the impact of the following is required to assist employers implement the proposed in-house benefit reforms:
- an employee agreeing to changes to the terms and conditions of the SPPA after 22 October 2012;
- the employer amending the terms and conditions of the SPPA after 22 October 2012 without the employee's consent.
To ensure all employees are subject to the same salary packaging terms and condition under SPPAs, the Government from time to time requests employees to accept updated terms and conditions. Some employees also move to updated terms and conditions through passive acceptance (continuing to salary package for 12 months after receiving notice of the updated terms and conditions).
Given that the definitions of 'existing salary packaging arrangement' in the draft legislation and the Explanatory Memorandum (EM) appear to emphasise an agreement between the employer and employee and the SPPA is an agreement between these parties, the change in terms and conditions could constitute a material alteration or variation to an existing arrangement.
Industry view/suggested treatment
Whether a change in the terms and conditions of the SPPA constitute a material alteration or variation to an existing arrangement should be determined by the materiality of the changes to the terms and conditions.
Tax Laws Amendment (2012 Measures No. 6) Bill 2012
Tax Laws Amendment (2012 Measures No. 6) Bill 2012 Explanatory Memorandum
This agenda item concerns the effect (if any) that a change to the terms of the salary packaging arrangement that is initiated by the employer 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.
Further, even if Royal Assent had been given, it would not have been possible to provide a response to this agenda item as the answer to the question of whether the updated terms and conditions will be considered to be a material alteration or variation of an existing salary packaging arrangement will depend upon the specific changes that are made to the terms and conditions.
As set out in paragraph 7.47 of the Explanatory Memorandum to Tax Laws Amendment (2012 Measures No. 6) Bill 2012:
In 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