TA 2008/14Salary Deferral Arrangements
The ATO view on the arrangement described in TA 2008/14 is set out in TD 2010/11.This document has changed over time. View its history.
FOI status: may be released
|Taxpayer Alerts are intended to be an "early warning" of significant new and emerging higher risk tax planning issues or arrangements that the Australian Tax Office has under risk assessment, or where there are recurrences of arrangements that have been previously risk assessed.
Taxpayer Alerts will provide information that is in the interests of an open tax administration to taxpayers. Taxpayer Alerts are written principally for taxpayers and their advisers and they also serve to inform tax officers of new and emerging higher risk tax planning issues. Not all potential tax planning issues that the Tax Office has under risk assessment will be the subject of a Taxpayer Alert, and some arrangements that are the subject of a Taxpayer Alert may on further examination be found not to be of concern to the Tax Office. In these latter cases the Taxpayer Alert will be withdrawn and a notification published which will be referenced to that Taxpayer Alert.
Taxpayer Alerts will give the title of the issue (which may be a scheme, arrangement or particular transaction), briefly describe the issue and will highlight the features which are of concern to the Tax Office. These issues will generally require more detailed analysis to provide the Tax Office view to taxpayers.
Taxpayers who have entered into or are contemplating entering into an arrangement similar to that described in this Taxpayer Alert can seek a formal determination of the Tax Office's position through a private ruling (noting that the Taxation Administration Act 1953 sets out circumstances where the Commissioner may decline to issue such a ruling). Such taxpayers might also contact the tax officer named in the Taxpayer Alert and/or obtain their own advice.
This Taxpayer Alert is issued under the authority of the Commissioner.
This Taxpayer Alert concerns arrangements where an employee defers salary and wage income. The purpose of the arrangements is to convert salary and wage income to a form that is taxed concessionally or not at all, for example, a capital gain, an employment termination payment or a loan.
The alert applies to arrangements having the following features:
- The employee and employer agree to defer the entitlement or payment of salary or wages income (or a bonus). Instead, the employer provides a loan to the employee, ordinarily of an amount equal in value to the income deferred. The loan may or may not be on arm's length terms.
- The employee uses the loan to acquire an income producing asset. The asset may be shares in the employer or an associated entity of the employer.
- The asset may be offered as security for the loans and may be held within a trust structure.
- After a fixed period of time, the employer applies the deferred income to the outstanding value of the loan.
- The application of the deferred income may occur after the employee has terminated employment with the employer.
DIAGRAM OF A TYPICAL ARRANGEMENT
FEATURES WHICH CONCERN US
The Tax Office considers that an arrangement of this type gives rise to taxation issues that include whether:
- the arrangement is a bona fide salary deferral arrangement;
- the arrangement is an effective salary sacrifice arrangement and taxed as described in Taxation Ruling TR 2001/10;
- subsection 6-5(4) of the Income Tax Assessment Act 1997 (ITAA 1997) applies to include the deferred salary as assessable income of the employee;
- Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) applies where the employee is a shareholder of a corporate employer such that the loan is included in assessable income of the shareholder as a deemed dividend;
- a payment or crediting of deferred income subsequent to termination of employment is an employment termination payment for the purposes of section 82-130 of ITAA 1997;
- the arrangement may constitute a scheme to which the general anti avoidance rules in Part IVA of the ITAA 1936 apply notwithstanding that the arrangement may be a bona fide salary deferral arrangement and/or an effective salary sacrifice arrangement as described in TR 2001/10;
- any entity involved in the arrangement is a promoter of a tax exploitation scheme for the purposes of Division 290 of Schedule 1 to the Taxation Administration Act 1953.
The Tax Office is currently reviewing these arrangements.
|Date of amendment
|19 January 2024
|Updated ATO tip-off hotline numbers
Date of Issue: 25 June 2008
Date of Effect: 25 June 2008
TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements
Salary & wages income
Fringe Benefits Tax
Related Taxpayer Alerts:
TA 2008/13 Authorised by:
Aggressive Tax Planning
|Aggressive Tax Planning
|Technical Case Leadership
|(02) 6216 2710