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Ruling

Subject: Salary sacrifice

Question 1

Can you reduce the amount to be declared as taxable income for the 2011-12 income year by the amount that has been salary sacrificed?

Answer

Yes.

Question 2

Can you reduce the amount to be declared as taxable income for the 2011-12 income year by the amount that should have been salary sacrificed?

Answer

No

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are a full time permanent employee of a subsidiary company belonging to a group. You were contracted by your employer to another subsidiary company to undertake a project for a five month period.

Prior to commencing work with the other subsidiary you had a verbal agreement with them for education expenses to be treated as salary sacrifice.

You received salary from the subsidiary company for the first three months and they also paid the education expenses.

The last two months salary was paid to you and the education expenses were not paid by the subsidiary company.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1936 section 23L

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

The Commissioner's view on the taxation implications of salary sacrifice arrangements (SSA) is discussed in Taxation Ruling TR 2001/10.

Paragraph 21 of TR 2001/10 states:

'Effective SSA' - an effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages.

Paragraph 48 of TR 2001/10 states; when addressing the remuneration agreements with employees'

The relationship between an employer and an employee commences with the entering into of a contract of employment prior to personal services being performed. An employment agreement can be entered into between the employer and one employee or a group of employees. The employment contract is usually in writing, although it may be entered into orally.

In your case although you have no written employment contract there is sufficient factual evidence to conclude that you had an effective verbal salary sacrifice agreement with your employer prior to you commencing the project employment. The subsidiary company paid the education expenses from the first three months of your project salary in accordance with your employment agreement for salary sacrifice purposes and therefore it reduces your taxable income for the 2011-12 income year.

An employment agreement is an arrangement between an employer and an employee and the Commissioner has no discretion to alter how salary has been paid to an employee. The subsidiary company did not pay education expenses in accordance with your employment agreement from the next two months project salary but rather it was paid to you as salary. Therefore the education expense for this period is not regarded as a salary sacrifice amount and is included as taxable income for the 2011-12 income year.

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