t is of course no coincidence that “tax time” is often a time when employees consider alternatives for efficiently structuring their remuneration in regards to tax, often taking the form of a suitable salary sacrifice arrangement (SSA).
Generally an employee will approach the payroll or human resources sections of their organisation regarding the possibility of commencing an SSA.
However very often the modern award that governs the employment of the employee does not contain a “salary sacrifice” clause.
Peter Adams, Tax & Super Australia’s Tax Counsel, says: “Typically the employee’s current annual salary is well in excess of the relevant award rate. However the amount intended to be sacrificed would result in a salary below the current minimum award rate.”
While the employer may be amenable to an SSA, there is a concern that such an SSA, if executed, may be in breach of the modern award because there is no specific term that allows for salary sacrifice.
“This raises the question whether the employer and the employee can agree to an effective SSA when the modern award does not specify anything in this regard,” Adams says. “The standing proposition acceptable to the ATO is that an employer and an employee can lawfully agree to an SSA by written agreement of the parties, regardless of whether or not the applicable modern award contains a provision allowing an SSA.”
He notes however that under s324(a)-(d) of the Fair Work Act 2009, one of the following conditions must be satisfied for the SSA to be lawful:
the deduction is authorised in writing by the employee and is principally for the employee’s benefit; orthe deduction is authorised by the employee in accordance with an enterprise agreement; orthe deduction is authorised by or under a modern award or a FWA order; orthe deduction is authorised by or under a law of the Commonwealth, a state or a territory, or an order of a court.
“Consequently, the absence of a specific provision regarding salary sacrifice, or salary packaging in the applicable modern award, does not prevent the parties from entering into such an arrangement provided the relevant provisions of the Fair Work Act are not contravened,” Adams says.
“Indeed, the introduction of an SSA would be considered to be principally for the employee’s benefit. Pointedly, the provision of an SSA where the applicable modern award was silent has been deemed by Fair Work Australia not to be in breach of the Fair Work Act.”
Suffice to say that this is a sound common-sense approach that affords employees under awards the same salary packaging flexibility as others and is to applauded.
Can employees under an award effectively salary sacrifice? Can employees under an award effectively salary sacrifice? Can employees under an award effectively salary sacrifice?
Can employees under an award effectively salary sacrifice? Can employees under an award effectively salary sacrifice? Can employees under an award effectively salary sacrifice?
# [ATO], [industrial awards], [salary sacrifice], [tax]
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