ATO ID 2001/333: Fringe Benefits Tax: Administrative costs of salary packaging
Date of decision: 23 July 2001
Business line: Superannuation and Employee Obligations

Issue
Whether the costs incurred by the employer, for the administration of salary packaging arrangement for its employees, would constitute the provision of a fringe benefit as defined under section 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
No. The costs incurred by the employer for the administration of employee salary packaging arrangement do not constitute the provision of a fringe benefit as defined under section 136(1) of the FBTAA.

Facts
The employer provides fringe benefits to employees by way of salary packaging arrangement and consequently incurs administrative costs either internally or externally to another company. The external administration may include the cost of maintaining records in relation to payment of employee fringe benefits and retention of relevant documents for record keeping requirements. These administrative costs do not include the costs of negotiating or renegotiating employee remuneration contracts. The external administrative costs are a sacrificed component of an employee's salary package.

Reasons for decision
Summary: Where the administrative service is provided to the employer by an external service provider, no fringe benefit liability will arise as no benefit has been provided to the employee within the meaning of the word "benefit" as defined under section 136(1) of the FBTAA. A benefit will not arise when the service agreement is between the employer and the service provider, and the employer is liable for the cost of the administrative services provided. Where the employer has a policy that employees who participate in salary package arrangements must sacrifice a certain amount of salary to recompense any administrative cost incurred, the liability for this cost will continue to be that of the employer in accordance with the service agreement between the employer and the service provider. Where the employer administers the salary packaging in-house and has a policy that employees who participate in salary package arrangements must sacrifice a certain amount of salary to recompense some or all of the administrative costs incurred, no fringe benefit will arise as no "benefit" as defined under section 136(1) of the FBTAA has been provided.

Legislative references: Fringe Benefits Tax Assessment Act 1986 Section 136(1)
Subject references: Benefit Fringe benefit Administration fee Administrative cost FBT salary packaging FBT salary sacrifice