ATO Interpretative Decision

ATO ID 2003/184

Income Tax

Capital Allowances: Cost of non-cash benefit
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the amount of salary forgone by an employee in return for an employer providing a computer under an effective salary sacrifice arrangement the cost of the computer under Subdivision 40-C of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. Where the computer was acquired through an effective salary sacrifice arrangement, the cost is the amount of salary that is foregone in return for the employer providing the computer (items 4 and 5 in the table in section 40-185 of the ITAA 1997).

Facts

An employer provides an employee with a desktop computer, pursuant to an effective salary sacrifice agreement, as a fringe benefit. The employee uses the computer to some extent for a taxable purpose.

Reasons for Decision

By entering into an effective salary sacrifice arrangement, as defined in paragraphs 19 and 20 of Taxation Ruling TR 2001/10, the employee and employer have agreed to an exchange of non-cash benefits. The employee has elected to forgo cash remuneration for their labour and in return the employer will provide a desktop computer of similar value.

The employee will be entitled to deduct an amount for the decline in value of the depreciating asset as the employee is the legal owner and therefore the holder of the asset under item 10 of the table in section 40-40 of the ITAA 1997.

Cost consists of two elements, first and second element, and is worked out under Subdivision 40-C of ITAA 1997. The first element of cost is worked out as at the time when the asset starts to be held. The second element of cost is worked out after that time.

The first element of cost is either an amount specified in the table in subsection 40-180(2) of the ITAA 1997 for particular circumstances or the amount taken to have been paid under section 40-185 of the ITAA 1997 for general circumstances.

Item 4and item 5 of the table in section 40-185 of the ITAA 1997 include amounts in cost where a non-cash benefit is provided or a liability to provide such a benefit is incurred or increased. Therefore the amount taken to have been paid under section 40-185 of the ITAA 1997 for a depreciating asset received under an effective salary sacrifice arrangement is the market value of the employee's labour for which they have forgone entitlement to cash remuneration. For example, if the taxpayer has their cash salary reduced by $3,000 and a computer provided instead, then the cost of the computer to the employee under section 40-185 of the ITAA 1997 will be $3,000.

The employee will be required to reduce their deduction for the decline in value of the computer under subsection 40-25(2) of the ITAA 1997 to the extent it is used for a non-taxable purpose.

Date of decision: 30 January 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1997
   Subsection 40-25(2)
   Section 40-40
   Subsection 40-180(2)
   Section 40-185

Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/10

Keywords
Capital Allowances CoE
Cost of a depreciating asset
Non cash benefits

Business Line: Effective Life & Capital Allowances Centre of Expertise

Date of publication: 28 March 2003

ISSN: 1445-2782

history

	Date:	Version:
You are here	30 January 2003	Original statement
	10 July 2004	Archived

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