Member Q&A – Can child support payments be salary packaged?

Question

Can an employee salary package child support payments?

Answer

The rules regarding salary packaging are set out in Taxation Ruling TR 2001/10 and are summarized on the ATO website (click here)

Subject to the usual rules being satisfied regarding what constitutes an ‘effective salary sacrifice agreement’ an employee’s child support obligations can be included as part of a salary sacrifice agreement. This is equally the case where the child support obligation is set out in a Binding Financial Agreement or determined by Service Australia’s Child Support area (and may otherwise have been required to have been withheld by the employer from an employee’s after tax salary).

It is important to note though that the amount packaged is a fringe benefit and will be subject to FBT so unless the employer is eligible for the FBT rebate or section 57A exemption it may not be overly tax effective for the amount to be packaged unless the employee is not otherwise using their rebate or capping limit.

It is also important to note that salary packaged child support would be a Reportable Fringe Benefit and as such would continue to be included in the calculation of the employee’s adjusted taxable income on which child support payment obligations are determined. For more information about child support obligations and how that may impact an employer please view the Services Australia website at the following  link.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.