Ruling Compendium TD 2010/11EC
Status: not legally binding







The edited version of the Compendium of Comments is a Tax Office communication that is not intended to be relied upon as it provides no protection from primary tax, penalties, interest or sanctions for non-compliance with the law. | In accordance with PS LA 2008/3 it only affords level 3 protection. | This is a compendium of responses to the issues raised by external parties to draft TD 2009/D6 - Income tax: can Part IVA of the Income Tax Assessment Act 1936 apply to a salary deferral arrangement as described in Taxpayer Alert TA 2008/14? | This compendium of comments has been edited to maintain the anonymity of entities that commented on the draft ruling. | ATO Response/Action taken | If Part IVA applies to such arrangements it would also potentially apply to other SSA for example arrangements which includes superannuation and packaged motor vehicles. | Part IVA could potentially apply to a superannuation scenario due to the permanent reduction in an employee's assessable income. The TD should discuss why Part IVA would not apply where superannuation was an option under the scheme, and what is the difference between the two investment strategies considering that the super option could be said to create a tax savings (15%) rather than just a deferral of tax. | A genuine loan arrangement can be provided under an effective SSA, whereby a potential entitlement to future income is foregone and instead a loan is provided to the employee where the loan is interest bearing and full recourse. We note that the loan should not otherwise be income of the taxpayer (according to section 59-30 of the Income Tax Assessment Act 1997 (ITAA 1997)). Should the ATO seek to apply Part IVA in such circumstances, this would undermine the tax treatment of effective SSAs contained in TR 2001/10. | The ATO view is that under a salary sacrifice arrangement, the rights to salary or wages income are permanently sacrificed in return for the provision of benefits of an equivalent amount, and it is assumed that the income 'sacrificed' is dealt with at that time under other taxing provisions. | Where a SSA involves contributions to a superannuation fund by an employer, the Commissioner's view in TR 2001/10 is that the amounts contributed are not assessable income of the employee under Division 6 of the ITAA 1997 or paragraph 26(e) of the ITAA 1936. The sums contributed have not been allowed, given or granted to the employee, but are paid to the administrators of the fund. The scheme of superannuation and taxation law is such that the employee is unable to get immediate access to the funds. | The arrangement as described in the Determination involves merely the deferral of the derivation of employment income to a later date, and not the permanent sacrifice of such income under a SSA. The Determination is not the appropriate place to consider any issues in relation to SSAs. | Accordingly, salary deferral arrangements which do not otherwise suggest or give rise to a constructive receipt of income appear to have been accepted by the Commissioner and should not attract Part IVA. | Taxation Determination TD 93/242 is still current and provides the ATO view on arrangements that include a deferred salary payment agreement, where a portion of the employee's annual salary is deferred in return for paid leave in a later period. However, TD 93/242 deals with an arrangement where the employee does not benefit by having immediate access to the deferred income by way of a loan that funds the acquisition of assets, unlike the arrangement described in the Determination. | In the absence of the 'constructive receipt' considerations, we submit that Part IVA should not apply to loans made in circumstances where the employee has an expectation that the loan would be repaid from future income which the employee does not have a current entitlement to receive, the loan was limited recourse, or at a low or nil interest rate. | The ATO acknowledges that salary packaging arrangements operating with one or more of the features described in the submissions might not attract the operation of Part IVA. However where the salary deferral arrangement exhibits all the features described in paragraph 4 of the Determination, the Commissioner's view is that Part IVA is likely to apply to the arrangement. | In particular we consider that Part IVA should not apply where: | That is, where a loan is repayable in the ordinary course and in accordance with its terms, then Part IVA should not apply to 'deem' the loan to be assessable income, merely because there is an expectation that the borrower will repay the loan funds from the proceeds of sale of the investments and/or any future income. | Accordingly, we submit that the draft determination should be amended to clarify that it is not intended to affect effective SSAs but rather would apply only to situations which clearly have the effect of constructive receipt of an equivalent amount of guaranteed future income. That is, where a bonus is not 'sacrificed' but its receipt is deferred in consideration of an equivalent amount being paid over to the employee by way of a loan that is, in effect or in substance, not repayable unless and until the employee receives the guaranteed future income. | There are a number of specific anti-avoidance provisions that deal with limited recourse loan arrangements (such as Division 243 and Division 247 of the ITAA 1997). We note that the Commissioner has previously accepted (in the context of employee share plan arrangements) that arms length limited recourse loan arrangements with employees should not qualify as a debt waiver fringe benefit or other taxable benefit - refer ATO ID 2003/316 and ATO ID 2003/317. It is also noted that the loans the basis of CR 2007/48 were not limited recourse, and yet the Commissioner cited Part IVA concerns. | The Commissioner has not changed the view as described in ATOIDs 2003/315, 2003/316 and 2003/317. The Determination is specific to the arrangement described in the Determination, which is different to that set out in the ATOIDs.