ATO ID 2001/532: Fringe Benefits Tax: Salary sacrifice arrangements involving loans with redraw facilities
Date of decision: 26 June 2001
Business line: Private Groups and High Wealth Individuals

Issue
Is a salary sacrifice arrangement (SSA) involving an employee sacrificing amounts into a home mortgage account with a redraw facility which satisfies Taxation Ruling TR 2001/10 and section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) effective for taxation purposes?

Decision
Yes, provided both Taxation Ruling TR 2001/10 and section 20 of the FBTAA are satisfied, an SSA involving an employer repaying into an employee's home mortgage account (with or without a redraw facility) is effective for taxation purposes.

Facts
The employer enters into a SSA with the employee. This arrangement involves the employer repaying amounts into the employee's home loan account in lieu of the payment of salary. The "home loan" has a redraw facility whereby the employee can access any amounts in excess of the minimum repayments.

Reasons for decision
Summary: An SSA is generally considered effective if the arrangement is set up within the rules in Taxation Ruling TR 2001/10. The consequence of an effective SSA would be that the employee agrees to forgo part of his or her total remuneration in return for the employer providing the employee "benefits" of similar value. The employee will only be liable to income tax on the reduced salary. The employer may be assessed under fringe benefits tax legislation in relation to those "benefits" provided to the employee. For a benefit to be an "expense fringe benefit" under section 20 of the FBTAA, the employer must be making a payment in relation to an "obligation" of the employee and that the payment is in respect of "expenditure incurred" by the employee. An arrangement for the employer to repay the employee's loan account (with or without redraw facility) is considered to be an "expense payment fringe benefit" provided by the employer to the employee under section 20 of the FBTAA. The full amount borrowed by the employee is viewed as the obligation of the employee, which has been partially met by the employer. The fact that the employee may or may not have utilised the redraw facility would not affect the arrangement. According to paragraph 39 of Taxation Ruling TR 2000/2, any redraw would constitute new borrowing of funds that cannot be traced to the extra repayments.

Legislative references: Fringe Benefits Tax Assessment Act 1986 Section 20
Related public rulings and determinations: TR 2000/2 | TR 2001/10
Subject references: Fringe benefits tax FBT non profit employers FBT charities FBT salary sacrifice arrangement FBT mortgage loan repayments FBT expense payment fringe benefits