Policy Statement Issued: December 2018
SALARY PACKAGING POLICY
1. Purpose
To inform employees of their eligibility for salary packaging and set out the salary packaging arrangements in the ACT Public Service. The policy may be amended by the Head of Service.
The Head of Service will:
a) promote and maintain the Policy on salary packaging in the ACT Public Service; b) approve and review the menu of benefit items which can be accessed under salary packaging; and c) not restrict the type of motor vehicle available under novated leasing to employees, except to ensure that they comply with Australian Tax Office (“ATO”) requirements.
This policy regulates the parameters, including the types of benefit items that can be salary packaged, and the “in-house” administrative arrangements provided by Shared Services Salary Packaging.
2. Application
This policy applies to all ACT Public Servants employed under the Public Sector Management Act 1994 and statutory office holders. Independent contractors are not eligible to access salary packaging benefits apart from superannuation.
3. Legislative Reference
Key principles of this policy are consistent with: a) Fringe Benefits Tax Assessment Act 1986; b) Income Tax Assessment Act 1997; c) Safety Rehabilitation and Compensation Act 1988;
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d) Public Sector Management Act 1994; e) Public Sector Standards 2006; and f) Enterprise Agreements
4. Direction Statement
The ACT Public Service needs to be well positioned to attract, retain and improve the capability of our workforce and recognises employees need to have access to flexible remuneration planning which better suits their individual needs and financial circumstances. Salary packaging, also known as salary sacrificing, is one way to provide this flexibility. Salary packaging is a tax-effective way for employees to receive their salary as a combination of income and benefits. The income tax payable on the employee’s pre-tax salary is replaced by a combination of income tax and Fringe Benefits Tax (“FBT”). The level of FBT depends on the type and value of the benefit items packaged. Benefits are paid from the employee’s pre-tax salary.
4.1 Policy Principals
The following principles underpin the salary packaging provision within the ACT Public Service:
The ACT Public Service Salary Packaging Policy and practices are guided by the provisions of the Fringe Benefit Tax Assessment Act, Tax Office Rulings, Superannuation Legislation and other relevant Australian Legislation and Enterprise Agreements, and will be amended from time to time to maintain alignment with the changes to the legislation.
Utilisation of salary packaging is voluntary for all eligible employees.
Employees are entitled to salary package up to one hundred percent (100%) of their available gross salary for packaging purposes as benefit items, after the deduction from salary of any compulsory superannuation contributions, fringe benefits tax and other deductions.
Any FBT payable on an employee’s proposed salary package is to be included for the purposes of calculating an employees gross salary, irrespective of whether the employee chooses to make contributions towards the FBT liability.
Salary for packaging purposes is the relevant salary specified in the employee’s Enterprise Agreement, Attraction and Retention Incentives (ARINS) or Australian Workplace Agreement (“AWA”). It does not include variable or occasional payments
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such as higher duties, shift and penalty allowances and overtime payments, unless these have been converted to annualised salary.
An employee’s salary for superannuation purposes will be the gross salary the employee would have received if not taking part in salary packaging. Eligible employees will continue to contribute to their current superannuation scheme, and the level of the employer contribution will be determined on the same basis as applied before salary packaging. Benefits payable under the Commonwealth superannuation schemes will continue to be calculated on the same basis.
An employee’s salary for compensation purposes, under the Safety Rehabilitation and Compensation Act 1988, will not change as a result of salary packaging. Eligible employees may continue their salary packaging arrangements while on compensation. COMCARE will not provide any compensation for any loss of taxation relief or investment benefit if the employee is retired because of a compensation- related condition or ceases to be an eligible employee.
Employees must give an undertaking, by agreeing to the terms and conditions in the “Letter of Offer”, that they will not use salary packaging to reduce their gross salary in an attempt to reduce their liability for any payments such as child support, or to access Australian and Territory Government provided benefits such as social security payments.
4.2 Taxation
The Fringe Benefits Tax Assessment Act 1986 and Income Tax Assessment Act 1997 regulate the relevant tax payable . Any changes to this , or any other legislation, that impacts on salary packaging, will be reflected in the employee’s remuneration package and will not be paid by the employer. Employees performing work exclusively for a Public Hospital may be eligible for taxation concessions on part of their salary. Taxation legislation require the taxable value of any fringe benefit to be “grossed up” and shown on an employees’ payment summary at the end of each financial year. Within the ACT Public Service only certain employees employed in ACT Health, Health ICT and the ACT Ambulance Service may be eligible for this concession. Some benefit items may attract Goods and Services Tax (“GST”). Under salary packaging arrangements, an entitlement to a Goods and Services Input Tax Credit (“ITC”) refund, payable by the ATO, may arise. Where there is an entitlement to an ITC, Shared Services will claim the entitlement in their Business Activity Statement (BAS) and, depending on how the employee’s initial pre-tax deduction was established, return the ITC to the employee. If the employee’s initial pre-tax salary deduction is exclusive of GST, Shared Services will pay the GST component of the employee’s payment to the relevant company, and any ITC subsequently claimed on the
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payment will be retained by Shared Services. If the employee’s initial pre- tax deduction is inclusive of GST however, any ITC claimed on the payment will be returned to the employee.
4.3 Eligibility for Salary Packaging
Eligible employees include: a) Executives engaged under the Public Sector Management Act 1994. b) Statutory office holders. c) A permanent officer or temporary employee employed under the Public Sector Management Act 1994, who is covered by an Enterprise Agreement, a SEA or an AWA, which contains a clause providing access to salary packaging. d) A casual employee, employed under the Public Sector Management Act 1994 who is covered by an Enterprise Agreement that contains a clause providing access to salary packaging may, subject to the agreement of the relevant Director-General (or his or her Delegate), be permitted to salary package items from the menu. e) Officers who have been declared excess are eligible to commence or continue salary packaging. f) Judges are excluded from salary packaging under the Commonwealth Remuneration Tribunal Determination that governs the terms of their employment.
4.4 Financial Advice
a) Independent financial advice is highly recommended for all employees before commencing salary packaging to discuss what packaging options are suitable. b) If an employee chooses not to obtain financial advice, they are required to complete a Waiver of Obtaining Financial Advice. Waivers are included in the employee’s initial Letter of Offer to Salary Package, and are also available from the Shared Services Salary Packaging Team. c) Initial financial advice sought in relation to establishing a salary packaging arrangement will be subject to FBT. Subsequent meetings with a financial advisor in relation to a salary packaging can be packaged as an FBT exempt item. Employees are advised to ensure that the financial adviser is an authorised representative of an Australian Financial Services Licence holder or the license holder themselves.
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4.5 Salary Packaging Costs
All costs from salary packaging are to be met by participating employees, including: a) salary package payments; b) all administration fees or charges; c) any FBT and GST payable (where applicable); d) any costs associated with obtaining initial financial advice; and e) any costs resulting from changes to legislation or Government taxes or charges. Please note when employees sign the Letter of Offer to Salary Package, they are agreeing to meet the above costs and therefore must ensure there are sufficient funds available. Should there be an increase in taxation payable by the employer, including FBT or any tax equivalent, the employer shall pass on all such costs to the employee. The employee must pay any additional amounts at the end of the reconciliation process by the Salary Packaging Team. In the event of any change, the employee will be entitled to amend their salary packaging arrangements in accordance with the Policy. Eligible employees are permitted to use the Employee Contribution Method (“ECM”) as part of their salary packaging arrangements. The ECM involves the employee making a contribution in after-tax dollars to reduce the taxable value of the fringe benefit.
4.6 Portability of Salary Packaging
An employee’s salary packaging arrangement is portable across all eligible agencies and statutory offices. The employee is responsible for obtaining approval from the receiving Directorate and for notifying Shared Services Salary Packaging of their change of employer. Employees with PH status should note that may lose their PH exemption transferring to another agency or business unit and should check with Shared Services Salary Packaging. In the event that Administrative Amendments are issued which affect the operational nature of an ACT Public Service Directorate or organisational unit, affected eligible employees will continue to be able to salary package until a new industrial agreement or contractual arrangement is in place.
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4.7 Changing a Salary Package
An employee may review the components of their salary package and vary package items at any time. The employee is entitled to have the components of his or her salary package reviewed if the employer’s FBT status changes.
4.8 Ceasing Salary Packaging
Employees may cease salary packaging at any time. In the event that the employee ceases employment or ceases to be an eligible employee, all financial responsibility for their salary package will revert to them.
5. Responsibilities
a) Chief Minister and Treasury Directorate
will maintain and promote the salary packaging policy; and will approve and review the Menu items available for Salary Packaging.
b) Shared Services Salary Packaging Team
will provide each employee wishing to participate in salary packaging with information on salary packaging in the ACT Public Service, including the ACT Public Service Salary Packaging Policy and Shared Services Salary Packaging Guidelines; will prepare and distribute salary packaging documentation (Letter of Offer, Salary Packaging Terms and Conditions and Salary Packaging Guidelines) to potential participants; will coordinate and present staff information sessions on salary packaging services offered; will maintain and update salary packaging documentation; will prepare and make salary packaging information available to existing participants; will commence and maintain employee salary packaging deductions; will maintain salary packaging data; may provide general advice on aspects of salary packaging; will prepare and distribute FBT statements to participants and Shared Services Finance as required;
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will make ITC statements available to employees currently salary packaging and Shared Services Finance; and will respond to salary packaging related queries.
c) Directorate or Agency
will advise Shared Services of any directorate or agency specific packaging arrangements or requirements; will direct employee enquiries to the Shared Services Salary Packaging Team; directorates whose employees are eligible for the PH FBT concessions will conduct regular audits on employee purchases made using prepaid Meal Entertainment and/or Venue Hire debit cards.
d) Employee
will familiarise themselves with the ACT Public Service Salary Packaging Policy and Shared Services Salary Packaging Guidelines; are strongly advised to seek financial advice from a licensed financial adviser; will provide the financial adviser with accurate information in order to obtain the best options for their salary package; employees will need to take the Letter of Offer with them to their financial adviser as proof that the employer has agreed to allow them to salary package, and the maximum level of salary which is available for packaging; and get signed the Financial Advice section of the Offer of Salary Packaging or complete the waiver section. will complete the Letter of Offer and forms sent to the employee and provide all required information; where the employee is currently making payroll deductions for benefit items they intend to salary package, such as insurance premiums, or have other payment arrangements in place with a financial institution, the employee must take the appropriate steps to change these arrangements; if the employee chooses to salary package a motor vehicle using a novated lease, the employee should contact a leasing company to familiarise themselves with the terms and conditions and any associated finance arrangements; if packaging a motor vehicle using a novated lease, is responsible for completing the FBT Declaration in relation to odometer readings, days the car is available for private use and any out of pocket unreimbursed car expenses and submitting this to the
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Shared Services Salary Packaging Team by the advised date following the end of each FBT year (31 March); once the salary packaging arrangement has commenced, the employee is responsible for notifying Shared Services Salary Packaging of any changes in the employee’s circumstances, such as: a) movement to another part of the ACT Public Service or a statutory office; b) changed personal circumstances affecting their salary packaging arrangements; c) leave without pay; d) termination of employment; and e) any changes to the employee’s pay that may adversely impact their salary packaging payments. is responsible for all costs associated with their salary packaging, including: a) salary package payments; b) all administration fees and charges as outlined in the Shared Services Salary Packaging Guidelines; c) any FBT and GST payable; d) any costs associated with obtaining financial advice, however ongoing costs can be packaged as FBT exempt item via reimbursement; and e) any other taxes or charges which any level of Government or the ATO may impose.
6. GLOSSARY
Agency: means administrative units established under the Public Sector Management Act 1994, Territory Instrumentality, entities and bodies established under legislation. Territory owned corporations. ATO: refers to Australian Taxation Office. Benefit Item: refers to items available for Salary packaging by the Employee. Employee: refers to all ACT Public Servants (Directors-General) and Statutory Officers. Employee Contribution Method: refers to after-tax salary package contributions made by an employee to reduce the employee’s FBT liability. Exempt Items: refers to those package items that are exempt from FBT. FBT: refers to the Fringe Benefits Tax imposed by the Fringe Benefits Tax Assessment Act. GST: refers to the tax imposed as Goods and Services Tax by the Goods and Services Tax Act.
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Gross Salary: represents an employee’s cash salary before tax is deducted. Input Tax Credits: refers to an entitlement arising under the Goods and Services Tax Act. Novated Lease: under a novated lease, the employee’s obligations under a finance lease agreement are transferred (novated) to the employer for the term of a Deed of Novation. PH: means organisations which have the status of a Public Hospital under section 57 of the Fringe Benefits Tax Assessment Act 1986. Reimbursement: refers to the repayment to an employee of money originally paid out by the employee for package items, upon receipt of original receipted accounts.
7. REFERENCES AND LINK
ATO Salary Sacrifice Arrangements Salary sacrifice and salary packaging | Australian Taxation Office
Shared Services Salary Packaging Guidelines http://www.jobs.act.gov.au/__data/assets/pdf_file/0011/500033/Salary_Packaging_Manua l.pdf
8. REVIEW
This policy will be reviewed after three years unless earlier review is required.
9. APPROVAL AUTHORITY
…………………………………………… ……………………………………………….. (Kathy Leigh) Date Head of Service
Date:
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Attachment A
MENU ITEMS AVAILABLE FOR SALARY PACKAGING The Head of Service has agreed the following items may be included in salary packaging arrangements for ACT Public Service employees. It should be noted that this list may be amended from time to time by the Head of Service without prior notice:
CATEGORY A - Otherwise Deductible Items (i.e. benefits that would otherwise be tax deductible)
Disability/Income protection insurance premiums; Financial counselling fees; Interest payments on an Investment loan; Membership fees and subscriptions to professional associations and unions (i.e. AIM, AMA, CPA, unions, etc.); Self education expenses related to the employee’s current employment activities; and Work-related travel expenses (not including travel to and from work).
CATEGORY B - Concessionally Taxed and Exempt Items
Exempt items (i.e. benefits that are exempt from FBT) Child care fees - ‘in house’ (i.e. employer provided, if available); and Laptop computers required to undertake employment duties (i.e. notebook, ipad).
Concessionally taxed items (i.e. benefits where the full value of the benefit is not subject to FBT) Contributions to a private superannuation fund (contributions made by the employer are exempt from FBT and income tax, but are subject to a contributions tax); Motor vehicle (for private use) through a fully novated lease; Salary packaged electric bicycles through a fully novated lease;
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Replacement vehicle - where an Executive chooses to 'cash-out' the employer- provided motor vehicle the replacement vehicle may be taken as a novated lease through salary packaging; Upgrade of an Executive’s employer-provided motor vehicle - where the Directors- General agrees to allow payments covering the difference between the lease payments to be made from the Executive’s pre-tax salary through approved salary packaging arrangements.
CATEGORY C - Full FBT Items (i.e. benefits subject to the full rate of FBT)
Aged and Disability care payments; Child care fees - ‘off site’ arrangements; Insurance premiums, other than income protection (eg. trauma/life, motor vehicle, home/contents); Investment loan (eg. real estate property for non-commercial purposes); Own home mortgage (or private home rental) payments; Personal investments through a registered managed trust or fund; Private health insurance premiums; Private travel (eg. personal holidays, home to work travel, car parking, bus fares, other modes of transport); School and higher education fees (including HECS-HELP); Utilities charges (eg. gas, electricity, telephone, water, rates, etc.); Meal entertainment expenses Venue hire expenses.
The above categories are in accordance with taxation rules at the date of publication.
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