Material variation - what is a change of benefits?
Proposed legislative changes to in-house benefits
It is difficult to interpret with any certainty what constitutes a 'variation to the types of benefits covered under the arrangement'.
Salary packaging arrangements can cover a variety of benefits including several in-house benefits and other benefits.
Paragraph 7.48 of the Explanatory Memorandum (EM) provides three examples of alterations or variations of an existing salary packaging arrangement that would more than likely be considered material. One of the examples listed is a 'variation to the types of benefits covered under the arrangement'.
The EM does not go into further detail in relation to what is intended. I.e. is each individual benefit a 'type of benefit', or does the 'type of benefit' mean, for example, residual or expense benefit? Alternatively, does 'type of benefit' only refer to in-house benefits?
Industry view/suggested treatment
Clarification of the above issue is required to assist employers implement the proposed reforms to in-house benefits.
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) the addition or deletion of a benefit 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, in referring to the extract from the Official Committee Hansard of the House of Representatives Standing Committee on Economics provided in the response to agenda item 5.5 and paragraph 7.47 of the Explanatory Memorandum to Tax Laws Amendment (2012 Measures No. 6) Bill 2012, the ATO noted that the answer to the question of whether the inclusion or deletion of a benefit from an existing salary packaging arrangement will be a material variation will depend upon the terms of the arrangement.
In this regard, the three dot points contained in paragraph 7.48 of the Explanatory Memorandum to Tax Laws Amendment (2012 Measures No. 6) Bill 2012 are merely three examples of what will more than likely be considered to be a material variation. They are not an exhaustive list and there may be other changes that can be considered to be material in the particular situation.
Therefore, although a particular benefit may not be considered to be a 'type of benefit', the addition or deletion of the particular benefit from the employment contract may be considered to be a material variation.
Given the answer depends upon the facts and circumstances of the particular arrangement, members who require clarification about the effect (if any) that the addition or deletion of a particular benefit will have on the application of the transitional provisions should apply for a private ruling about the particular situation.