1. 1. What Is Salary Sacrificing Or Salary Packaging?

Salary sacrificing is also called total remuneration packaging or salary packaging.

A salary sacrifice arrangement is when an employee agrees to receive less take-home income from the employer in return for benefits of similar value. These benefits will be paid out of the pre-tax salary of the employee.

But why would you agree to receive less take-home pay? Because doing so will result in you paying less tax on your income. A salary sacrifice arrangement can reduce your taxable income, and as a result, you will be paying less tax. Benefits may include goods and services, such as a laptop or even a car, or voluntary contributions to the superannuation account of the employee.

  1. How Does Salary Sacrifice Work?

Salary sacrifice is the arrangement made between your employer and you.

When this arrangement is in place, a deduction of an agreed amount from your pre-tax salary will start and will go towards the benefits over a predetermined period of time. The salary sacrifice arrangement can start when you begin a new job, or you can start it after you have been working for the same employer for some time now. In both of these ways, you are able to salary sacrifice a portion of a future entitlement.

In simpler terms, this means you cannot salary sacrifice the salary or wages, bonuses, commissions or leave entitlements you accrued before entering into the arrangement. It is worth noting that an employer is not legally bound to allow it (salary sacrifice arrangement). However, most employers will.

  1. What Can You Salary Sacrifice?

The most common benefits include contributions to your superannuation and the price of items like cars (generally through a novated lease), laptops and phones in exchange for an agreed portion of pre-tax salary or wages.

The Australian Taxation Office has stated that there’s no restriction on the kinds of benefits you can get from a salary sacrifice arrangement.

  1. Fringe Benefits

Many benefits that you may include in a salary sacrifice arrangement are fringe benefits. Your employer, in this case, will need to pay fringe benefits tax (FBT) on the value of the (fringe) benefit they provide you.

In case an employer needs to pay FBT, they may ask the employee to make an employee contribution to reduce the fringe benefits tax payable.

The most common Fringe benefits include:

  • shares
  • goods
  • cars
  • payment of your expenses for loan repayment, childcare costs and school fees.

Exempt Benefits

An employer will not have to pay Fringe Benefits Tax on exempt benefits like:

  • computer software
  • protective clothing
  • a portable electronic device
  • tool of trade
  • a briefcase
  1. Superannuation

You can choose to use a salary sacrifice arrangement to have some of your wages or salary paid into your super fund instead of being paid to you.

This will reduce your taxable income, meaning you will be paying less tax on your income. This is an extra payment on top of the superannuation guarantee contribution that the employers have to make. At the time of writing, the superannuation guarantee rate or SG rate is 11% of the ordinary time earnings of an employee.

These concessional contributions will be taxed in the super fund at the rate of 15%. For a lot of people/ employees, this rate is less than the marginal tax rate applied to their salaries. The reason behind this is that the salary sacrificed super contributions are known as employer super contributions and thus are taxed at the concessional rates.

  1. How Much Can I Contribute?

Although there is no limit on how much one can salary sacrifice into super, you will have to pay accordingly to the concessional contribution cap. This cap is $27,500 per financial year. Concessional contributions exceeding this cap will be taxed at the marginal tax rate.

However, you must remember that the contributions made into your super (under the salary sacrifice arrangement) aren’t the only contributions that count towards this concessional contribution cap.

Other contributions that will count towards your concessional contribution cap generally include:

  • Compulsory contributions that the employer has to pay under the super guarantee, which includes contributions from other jobs you might have held in the financial year.
  • Contributions you make to your super using after-tax dollars, which you can choose to claim a tax deduction for.
  1. What Are Employer Super Contributions?

Employer superannuation contributions are compulsory contributions that the employer must make into an employee’s super account. Since these contributions will count towards your concessional contribution cap, it will limit the amount you can sacrifice into super.

The amount of employer super contributions you will receive is based on your wage. As mentioned earlier, the employer will be required to pay 11% of your wage into a superannuation account every year.

  1. Is It Worth Salary Sacrificing Into Super?

There are a lot of benefits of salary sacrifice contributions. Not only do you get to pay less tax, but you also end up saving up more money in your super fund for your retirement. Whether your salary sacrificing into super is worth it or not for you, you will have to depend on your personal circumstances and objectives.

You will also need to be comfortable that the amount of salary sacrificed won’t be accessible until you are eligible to access your super.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.


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