Can a councillor salary package amounts otherwise due?
Question
Can a Councillor salary package amounts otherwise due from Council and instead receive use of a Council provided car (in a novated lease scenario)?
Answer
The simple answer is ‘yes”. However there are some important conditions that apply and it is useful to understand why salary sacrifice is possible.
Initially, the concept of an employee for FBT purposes encompasses a person who is entitled to receive ‘salary and wages’. Salary and wages include a payment from which an amount must be withheld under s. 12-45 of Schedule 1 to the Taxation Administration Act 1953. Section 12-45 of Schedule 1 includes a payment made to a member of a local governing body (which includes a Council) where there is in effect, in accordance with s. 446-5 of Schedule 1, a unanimous resolution by the body that the remuneration of members of the body be subject to withholding.
TR 2001/10 at paragraph 10 explains the outcome where an amount that would otherwise be income of a person is ‘paid’ to the person by way of a fringe benefit.
TR 2001/10 states:
’10. If a “fringe benefit”, as defined by subsection 136(1) of the FBTAA, or an exempt benefit under the FBTAA, is ordinary income or statutory income derived under the ITAA 1997, section 23L of the ITAA 1936 provides that the income is exempt income. Therefore, even though the fringe benefit or exempt benefit may be income in nature, it is exempt income and subsection 6-15(2) of the ITAA 1997 ensures that it does not form part of the assessable income of the employee under section 6-5 or 6-10 of the ITAA 1997.’
In short, where an amount is treated as a fringe benefit the FBT regime takes priority.
The ATO, at paragraph 3 of TR 2001/10 confirm that, subject to the other conditions required for an effective salary sacrifice arrangement to exist, payments within s. 12-45 of Schedule 1 may be the subject of salary sacrifice.
Accordingly, where a Council has made the unanimous resolution required by s. 446-5 of Schedule 1, provided the ATO conditions of an effective salary sacrifice agreement are met (as set out in TR 2001/10) a person may salary sacrifice an amount that would otherwise be income and instead receive a fringe benefit, in this case use of a car provided by Council (in a novated leased scenario).
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