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switfy123(Initiate)Initiate
21 Jan 2025

HI,


We have a staff member who wants to purchase 4 weeks of annual leave. This amount will be a weekly deduction for 52 weeks. We are planning to deduct it from their gross income pre tax.


  1. Does this mean the employee will only be taxed when they take the leave?
  2. When would super be paid on the amount?
  3. How should the deduction category be classified? Is it Salary sacrifice (other employee benefits) ?
  4. How should the purchased annual leave taken be classified? Is it Leave - other paid leave?

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PayrollDeanne(Taxicorn)Taxicorn
21 Jan 2025

Hiya @switfy123 ๐Ÿ‘‹


  1. Yes
  2. When you pay the absence taken
  3. Yes
  4. Yes

Deanne

switfy123(Initiate)Initiate
21 Jan 2025

Thank you for your reply.


If the 4 weeks of leave are acrrued automatically and the staff member takes a week of leave whilst the deduction is being taken out. How would that weekly pay cycle be treated?


Because if there is 1 week of leave being taken which will have PAYG and Super taken on it, but then the pre-tax deduction then reduces the totals. Is this correct? It doesn't sound like it.

PayrollDeanne(Taxicorn)Taxicorn
21 Jan 2025

@switfy123, let's do an example using a "top-down" package of:


  • pre-tax fortnightly salary of $5,000 (Gross)
  • salary sacrifice of $500 (salary sacrifice- other)
  • resulting in post-sacrifice pay of $4,500 (OTE).

When they take the absence, it's:

  • $5,000 (paid leave - other/OTE)
  • sal sac $500 (sal sac - other)
  • resulting in post-sacrifice pay of $4,500.

When they take the leave, it represents all of the salary sacrifice that wasn't OTE when sacrificed but is OTE when paid. This arrangement works well for many employers.


There are 3 different methods but this is the most popular. Refer to one of the ATO STP2 webinars (at 16m40s)


Purchased leave isn't an effective Salary Sacrifice Agreement, but we use that same method to pay the employees money back to them. ๐Ÿ˜‰


Deanne

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Purchased Annual leave - Super, Tax and classification | ATO Community