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Whether salary sacrifice arrangements reduce a taxpayer's arm's length salary?

Yes, salary sacrifice arrangements do reduce a taxpayer's arm's length salary.

The taxpayer applied for the determination of an arm's length salary.

Included in the application was a remuneration report which claimed that the taxpayer's arm's length salary should be valued at a rate higher than previously allowed.

The taxpayer's remuneration package consisted of actual salaries, employer superannuation contributions and fringe benefits for the requested three consecutive years. The taxpayer sacrificed significant amounts of salary for superannuation and fringe benefits in the requested three consecutive years.

The nominal salary figures for the relevant three years were reduced by the same proportion as the taxpayer had sacrificed actual salary to superannuation and other fringe benefits. These amounts were deducted from the total salary package in order to arrive at a 'salary' as defined under subregulation 47(1) of the Income Tax Regulations 1936 (ITR 1936). Accordingly, salary sacrifice arrangements do reduce a taxpayer's arm's length salary.