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; Page | 1 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 Page | 2 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 Page | 3 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. Page | 4 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