cost-of-living bonus

If employers grant additional payments that have not been granted in the past, these can be approved by the employer as a cost-of-living bonus free of tax under certain conditions. In practice, this gives rise to a large number of questions, some of which have now been answered by the Ministry of Finance in the form of FAQs. We have summarised the most important answers for you below.

Payment in monthly instalments or in other forms (vouchers)

Cost-of-living bonuses can also be paid out tax-free if the payment is made in two or more instalments or monthly together with the current remuneration.

In the view of the Ministry of Finance, payment in the form of vouchers or other non-cash benefits is also expressly possible, provided that the other requirements for the granting of a tax-free cost-of-living bonus pursuant to § 124b Z 408 EStG1988 are met. A recording in the payroll account and payslip is nevertheless required.

Issuance to employees on part-time or maternity leave

It is possible to grant part-time employees the full amount of the cost-of-living adjustment, provided that the other conditions are met. In the view of the Ministry of Finance, it is not compulsory to factor in the cost-of-living bonus, but it is certainly conceivable in view of the requirement of objectively justified group formation.

In addition, the cost-of-living bonus can also be paid to employees on maternity leave, because only the basic entitlement to remuneration is suspended during such a justified period of inactivity. If an additional benefit is granted during maternity leave due to cost-of-living increases, this can be granted as a tax-free cost-of-living bonus, provided that the other requirements are met.

Social reasons as a tax group characteristic

With regard to the cost-of-living allowance, the Ministry of Finance considers that social criteria can also be used to form a tax group (e.g. grouping according to marital status and/or number of children, if any).

Obligation to provide evidence or necessary documentation requirements

According to the Ministry of Finance, no proof needs to be provided for the cost-of-living adjustment itself. In principle, a written agreement on a cost-of-living increase is not necessary.

In those cases in which not all employees are granted the same amount of cost-of-living adjustment, the criteria for the grouping must be explained accordingly. Arbitrary grouping (for example, according to personal preferences or close relationships) cannot lead to tax exemption. Whether the grouping can be objectively justified also depends on the type of advantage associated with the group membership and the purpose of the tax exemption in the individual case (cf. VwGH 27.7.2016, 2013/13/0069).

TIP FOR PRACTICE: Written documentation is therefore highly recommended in the context of group formation! It will help you to avoid subsequent discussions about the objectivity and comprehensibility of the group formation carried out in the context of a payroll audit (GPLB-Prüfung).

Clarification: No possibility of conversion of a voluntary performance bonus

According to the legal requirements, the cost-of-living bonus must be additional payments that were not usually granted in the past. A performance bonus granted (almost) annually on a voluntary basis (= recurring payment related to the company's performance with a right of revocation) cannot be converted into a cost-of-living bonus because it is not an additional payment that was not usually granted in the past.