Salary Sacrifice Rules

Revenue recently released an update to their salary sacrifice rules, as provided below:

1: Salary sacrifice – general tax position
The term salary sacrifice is generally understood to mean an arrangement under which an employee forgoes the right to receive any part of his or her remuneration due under his or her terms or contract of employment, and in return, his or her employer provides a benefit of a corresponding amount to the employee.

Section 118B TCA 1997 generally provides that where an employee forgoes salary payable under an existing contract of employment in exchange for a benefit, the employee remains taxable on the “gross” income payable. The salary sacrificed will be considered to be an application of income earned by the employee, not an
expense incurred by the employer.

2: Salary sacrifice – exceptions
There are a number of exceptions to the tax treatment outlined in 1 above set out in subsection (2)(a) of section 118B. These relate to salary sacrifice arrangements
specifically approved by the Revenue Commissioners in relation to:

a) bus, rail or ferry travel passes (see Part 05-03-11 for further details)

b) exempt shares appropriated to employees under approved profit-sharing schemes, provided certain conditions are met (see Part 17-01-02 – Profit Sharing Schemes, for further details)

c) bicycles and safety equipment (see Part 05-04-08 – Provision of bicycles and associated safety equipment by employers to directors and employees for further details).

Where one of these exceptions apply, the salary sacrifice is exempt from tax.

These exceptions shall not apply where:

1. There is an arrangement or scheme in place whereby the employee is compensated, wholly or partly, by the provision a benefit

2. A salary sacrifice agreement is entered into in respect of any right, bonus, commission or any other emolument which arises to an individual after the end of the year of assessment concerned.

3. A benefit, which would have otherwise qualified for an exemption under section 118B(2)(a), is provided to the spouse, civil partner or a person connected with the individual who has entered into a salary sacrifice arrangement.

(Source: Revenue)