Is this illegal? Mortgage salary sacrifice

Discussion in 'Legal Issues' started by JetstreamVic, 17th Mar, 2021.

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  1. JetstreamVic

    JetstreamVic Well-Known Member

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    So I know someone (not me, I promise), who works in a benevolent organisation which allows that her mortgage can be salary sacrificed.

    However, in talking to her, the money comes from the salary packing place, and direct into the off-set account for the home loan.

    In my thinking, an offset account is really not much different to a usual transaction account (save for the interest saving mechanism), so essentially this person has placed pre-tax income into a savings account.

    Am I right in thinking that the money should have been paid directly into the mortgage (reducing that amount), and that the Tax Office could view this as tax avoidance (albeit perhaps unintentional)?
     
  2. Marg4000

    Marg4000 Well-Known Member

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    Most salary sacrifice arrangements are outsourced to an outside organisation.

    I would expect that they are up to date on what is allowed and what isn’t. The “rules” for charities and benevolent societies are quite wide.
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    If it was paid to a offset its likely to fail being "sacrificed" and would be taxable as income and completely futile leaving a tax shortfall due. It no different to crediting a savings account. It isnt a expense payment fringe benefit and therfore cant be exempt as fringe benefit ! The onus is on the taxpayer to declare the income so the employer may have created an aweful issue that must be UNWOUND by the employer. The employee cant fix it. If the employee repays the employer and the employer then credits the loan it may correct the issue. The timing of the FBT year could pose a issue if it occurred prior to 31 March 2020. Now is the right time to ask as the FBT year ends on 31 March

    The employer could also be liable to a 100% penalty for failure to withhold PAYG tax if it were not corrected. The employee may then have a Fair Work enforceable obligation to repay the overpayments (of that tax)

    A former ruling (withdrawn) explained the concept. Withdrawn as the issue was evident elsewhere in the FBT Handbook not because they changed their mind.
    https://www.ato.gov.au/law/view/document?DocID=AID/AID2002614/00001
     
    Last edited: 17th Mar, 2021
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I completely disgree. Few if any staff are tax practitioners. Its a issue that may mean a PAYG summarry is later amended and a return amended. If fixed now for the present FBT year it should be OK
     
  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I see these salary sacrifice arrangements in charities and public health all the time.

    I can't tell you what the legalities are, but they're always paid into a transaction account, such as an offset account. They're never paid direclty on to the loan.

    From the banks perspective, it's not really a salary 'sacrifice', it's an arrangement that gets the employee part of their salary tax free. Despite this they still view it as taxable income in their calculations.
     
    Last edited: 17th Mar, 2021
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its a total fail for tax purposes. The employee has a contingent tax liability. The ATO finds one bad packaging firm, they find 1,000 and all the employees get affected. Just because a lot of people do it doesnt mean its correct. Any I have been asked to advise on have been a credit card facility, repay a credit card or personal loan / home loan. Even repaying a IP works since it is the interest charged NOT the repayment that is deductible. Many also offer a "shopping card" which is not a savings account but a credit facility that is not unlike a credit card with a negative balance. Someone I saw had a specific supermarket card that held a stored value.

    Its also possible that prior to hitting the offset its paid through another account.

    A expense fringe benefit should never be paid to a savings account. A debt repayment works. Not a offset. Its a form of savings. Its just taxable income.
     
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  7. Toon

    Toon Well-Known Member

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    Exactly. I currently salary package my mortgage (government employer) and it goes into my offset account, which is also the account that my mortgage repayments are debited from. The requirement is to verify how much your mortgage repayments are and as long as they are equal to or greater than the amount you are packaging, it doesn't matter whether the payments go directly onto the mortgage or into another account.
     
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  8. Property Baron

    Property Baron Well-Known Member

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    So this is all tax free? I mean if you salary sacrifice 2k a month into your offset account that is effectively 24k a year tax free income you would normally pay tax on?
     
  9. BennEznElle

    BennEznElle Well-Known Member

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    The ATO is pretty clear on the fact that amounts paid into an offset account are salary and wages and cannot constitute an expense payment fringe benefit.

    ATOID 2002/614 (withdrawn) originally covered this issue but it was withdrawn as it was clearly stated in the ATO Fringe Benefits Guide for Employers as per below;

    Home mortgage: The taxable value of this benefit is the total amount you reimburse or pay. Payments you make to an employee's mortgage account are an expense payment fringe benefit. However, payments made into an employee's home mortgage offset facility are not an expense payment fringe benefit, but rather a payment of salary and wages.
     
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  10. Toon

    Toon Well-Known Member

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    There's a limit - I think the maximum amount is currently about $9000 p/a.

    This is from the manual:

    Home Mortgage or investment loan (non-commercial)
     The employee must provide proof of the financial arrangement through mortgage and bank statements.
     Every second year the employee must produce proof that the mortgage or investment loan is continuing.
     The benefit will be scheduled for two years and cease after this time pending ongoing substantiation of the mortgage or investment loan.​


    Some employees of Public Hospitals (PH’s) may be eligible for an exemption of FBT on the value of benefits provided to the grossed up value of $17,667. The taxable value of any fringe benefit is “grossed up” and shown on the employee’s payment summary at the end of each financial year.
    So whilst you don't pay PAYG tax on the salary packaged amount, the grossed up amount is counted towards things such as HECS repayment calculations etc.

    It's probably also better to think of it as being reimbursed for payments you have already made rather than getting money and then not spending precisely that money on what you've packaged.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I think the argument for this is that public health and charities often can't afford to pay people as well as the private sector. It's good to have these organisations, so the staff get a tax break to incentise them to work there.

    There is an interesting life hack to this which I've seen a few people use. Rather than one job, they have multiple part time jobs. The salary sacrifice is made on a per-employer basis. This way they can get the same benefit several times over.
     
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  12. Property Baron

    Property Baron Well-Known Member

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    So basically if the employer agrees to this then anyone can salary sacrifice approx 9k p/a into offset account and it's tax free.
     
  13. Toon

    Toon Well-Known Member

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    Only certain employers are able to offer this kind of arrangement and the money going into the offset account is, in effect, a reimbursement of payments made off the mortgage. Yes, tax free apart from the grossed up amount increasing the taxable amount HECS and Medicare are calculated on.
     
  14. Property Baron

    Property Baron Well-Known Member

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    Don't really understand the grossed up amount increasing tax amount. What if you don't have HECS and how does it impact Medicare surcharges ect?
     
  15. Toon

    Toon Well-Known Member

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    If you don't have HECS, then no impact there. I can't remember off the top of my head which part of Medicare it affects, but certain things are assessed on the grossed up amount whereas the PAYG income tax component doesn't count it at all.
     
  16. Property Baron

    Property Baron Well-Known Member

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    Seems like a good tax break. Would love to know how much the grossed up amount equates too
     
  17. Stoffo

    Stoffo Well-Known Member

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    Yep, get a govco job (nurse in public hospital) salary sacrifice into mortgage, redraw on mortgage to buy new car, OS holidays, renovations, happy days :cool:
    It works for many
     
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  18. Property Baron

    Property Baron Well-Known Member

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    You mean into offset account right?
     
  19. Guest

    Guest Guest

    Never?

    Why would paying the funds into an offset account be appropriate? Maybe it's what most people do (because they don't know any better?)... but then for those salary sacrificing onto a credit card why not have that paid into any random account from which the monthly direct debit for the credit card is drawn... wouldn't that be the same?

    My wife salary sacrifices and we gave them the account details for the loan account so that it's paid directly into the mortgage (not into an offset account).
     
  20. Angel

    Angel Well-Known Member

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    I recently refinanced my home loan and the bank sent us a direct debit form from our original bank account to the new offset account. Not from our bank account directly into the mortgage itself. That is how this bank operates.

    Hmm, this thread has got me thinking........
     

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