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Sarah_Yu(Initiate)Initiate
7 Aug 2024

Hello,

I am seeking guidance on the correct accounting treatment for GST on post-tax deductions related to a novated lease arrangement.

Our company has entered into a novated lease agreement with a leasing company, and we are making salary sacrifice deductions from an employee's salary. The deductions are divided into pre-tax and post-tax components. The documentation from the leasing company specifies that there is a GST component on the post-tax contribution.

Here are the details of the salary deductions:

  • Pre-Tax Salary Sacrifice (Excl. GST): $323.79 (fortnightly)
  • Post-Tax Contribution (Excl. GST): $217.51 (fortnightly)
  • GST on Post-Tax Contribution: $21.75 (fortnightly)
  • Total Salary Sacrifice: $563.05 (fortnightly)

I understand that the pre-tax salary sacrifice is not subject to GST. However, I need clarification on how to book the GST on the post-tax contribution. Specifically, should the GST on the post-tax deduction be recorded as GST on sales, or is there another correct way to account for this?

Any guidance on the proper accounting treatment for these transactions would be greatly appreciated.

Thank you.

5,334 views
8 replies
5,334 views
8 replies

Most helpful response

Most helpful reply

Matt_ATO(Community Support)Community Support
11 Aug 2024

Howdy @Sarah_Yu,


As you mentioned, the pre-tax salary sacrifice is not subject to GST. This amount should be recorded as a salary sacrifice deduction.


The post-tax contribution includes a GST component. This means you need to account for the GST separately.


The GST on the post-tax contribution should be recorded as a GST liability. This is because the GST collected on the post-tax contribution is payable to the us.


Pre-Tax Salary Sacrifice:

  • Debit: Salary Expense $323.79
  • Credit: Salary Sacrifice Liability $323.79

Post-Tax Contribution:

  • Debit: Salary Expense $217.51
  • Debit: GST Liability $21.75
  • Credit: Salary Sacrifice Liability $239.26


All replies

Most helpful reply

Matt_ATO(Community Support)Community Support
11 Aug 2024

Howdy @Sarah_Yu,


As you mentioned, the pre-tax salary sacrifice is not subject to GST. This amount should be recorded as a salary sacrifice deduction.


The post-tax contribution includes a GST component. This means you need to account for the GST separately.


The GST on the post-tax contribution should be recorded as a GST liability. This is because the GST collected on the post-tax contribution is payable to the us.


Pre-Tax Salary Sacrifice:

  • Debit: Salary Expense $323.79
  • Credit: Salary Sacrifice Liability $323.79

Post-Tax Contribution:

  • Debit: Salary Expense $217.51
  • Debit: GST Liability $21.75
  • Credit: Salary Sacrifice Liability $239.26


Sarah_Yu(Initiate)Initiate
14 Aug 2024

Hi Matt,

Thank you for your response. However, I would appreciate some further clarification as I have a few concerns regarding the proposed accounting treatment for the GST on post-tax deductions.

Our Current Posting Method:

Payroll Entries:

  • Debit: Salary Expense $563.05
  • Credit: Net Pay/Wage Payable $563.05
  • Debit: Net Pay/Wage Payable $563.05
  • Credit: Salary Sacrifice Liability $563.05

$563.05 is made up of $323.79 pre-tax and $239.26 post-tax

After these payroll entries, Net Pay is nil, and the credits are fully allocated to the Salary Sacrifice Liability.

Leasing Company Invoice:

  • Debit: Salary Sacrifice Liability $541.30 (This is the total made up of $323.79 pre-tax and $217.51 post-tax)
  • Debit: GST Paid $21.75
  • Credit: Trade Creditor $563.05 (This is the total made up of $323.79 pre-tax and $239.26 post-tax)

Issue Identified:

This method leaves us with a Credit balance of $21.75 in the Salary Sacrifice Liability account.

We believe the Salary Sacrifice Liability account should be fully cleared.

Would you be able to review our method and confirm the correct treatment?

We want to ensure compliance while also ensuring the accuracy of our financial records.

Brunner76(Newbie)Newbie
8 Nov 2024

under a Novated leasing arrangement, the GST on the ECM component is deducted PRE-Tax. The Employee doesnt pay GST on the Pre-Tax component. ...so the company will be out of pocket by the amount equivalent to the GST Credit minus the GST Debit...which is the amount you then claim back via your BAS


ShellRae(Newbie)Newbie
14 Oct 2024

Hi Matt.


When is the GST tax point for ECM payments please?


Is it:

- when net pay is made to the employee

- ECM payment made to the novated lease company

- when the novated lease company email the ECM report detailing the GST element.


Thanks

Elli_T(I'm new)I'm new
11 July 2025

@Deb_ATO

The accounting treatment on salary sacrifice novated lease entries are very helpful. Can I please ask, there is no FBT to prepare for this vehicle by employer, is that right?


thank you.

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How to Account for GST on Post-Tax Deductions in Novated Lease | ATO Community