Reasonable benefit limits: definition of 'salary'

Are superannuation contributions under an effective salary sacrifice arrangement (SSA) included in 'salary' for transitional reasonable benefit limit (TRBL) purposes?

No. Superannuation contributions under an effective SSA are not included in 'salary' as defined in subregulation 47(1) of Part 5A of the Income Tax Regulations 1936 (ITR 1936).

Facts

The applicant 'sacrificed' a large portion of his income to a personal superannuation fund for the requested three consecutive years. These salary sacrifice superannuation contributions were made as part of an effective SSA for the relevant three consecutive years.

The term 'salary' is defined in subregulation 47(1) of the ITR 1936. Salary for reasonable benefit limit (RBL) purposes includes income from employment, including the holding of an office, paid to a person during a financial year. Termination payments and allowances to cover expenses incurred on behalf of the applicant's employer or business are excluded from salary. Salary from all sources is aggregated.

Taxation Ruling TR 2001/10 (TR 2001/10) sets out the ATO view on how the taxation and superannuation laws apply to salary sacrifice arrangements (SSAs).

Paragraphs 28 to 31 of TR 2001/10 deal with benefits provided to or on behalf of an employee under an effective SSA. Paragraph 31 of TR 2001/10 states that: 'an employer's contributions under an effective SSA to a superannuation fund on behalf of an employee is not assessable income of the employee under paragraph 26(e) [of the Income Tax Assessment Act 1936 (ITAA 1936)]. The sums contributed have not been allowed, given or granted to the employee, but are paid to the administrators of the fund. Also, the scheme of superannuation and taxation law is such that the contributions are not assessable income of the employee.'

As the sums contributed through employer contributions or under 'salary sacrifice' arrangements have not been paid to the applicant, they cannot meet the definition of 'salary' in subregulation 47(1) of the ITR 1936. These amounts cannot be included as salary in the calculation of Highest Average Salary (HAS) for RBL purposes. For these reasons, the definition of 'salary' used in the calculation of HAS does not include superannuation contributions under an effective SSA.

Therefore, the applicant's 'salary' for RBL purposes is essentially the applicant's income from employment, apart from any excluded amounts, that were actually paid to the taxpayer during the relevant income years.

These amounts will be the amounts paid to to the applicant as indicated on the applicant's group certificates for the relevant years.