You and your employer agree for you to receive less income before tax and in return your employer pays for certain benefits of similar value for you. This means you pay less tax on your income. A salary sacrifice arrangement reduces your taxable income, meaning you may pay less tax on your income.
The value of this benefit is paid from your gross salary, i.e. before tax. This means that your gross salary is reduced by the cost of the benefit before the income tax is calculated.
Salary sacrificing is a regular pre-tax contribution from your regular income into your superannuation and is taxed at the lower rate of 15% if your salary package is less than $250,000 per year.
Under an effective salary sacrifice arrangement: the employee pays less income tax on their reduced salary or wages. you, as the employer, may have to pay fringe benefits tax (FBT) on the fringe benefits you provide.
Payroll tax is applicable to salary sacrifice arrangements. Note the following: the reduced wage that the employee pays income tax on is treated as taxable wages. the pre-tax superannuation contribution is classified as the employer contribution and is taxable.
Salary sacrifice reduces your taxable income, so you pay less income tax. Only 15% tax is deducted from your salary sacrifice amount compared to the rate you pay on your income, which can be up to 47% (including the Medicare Levy).
Who benefits? Salary sacrificing is usually most effective for people on middle to high incomes. Once you pay 32.5% or more in tax, you can do more with your pre-tax dollars. For example, you might package a salary of $125,000 to receive $90,000 as income and a $35,000 car as a benefit.
It is important to note that salary sacrificing, or packaging, also has its disadvantages. Not covering expenses – part time workers or low-wage earners will be unlikely to benefit, as they will bring home less wages which may not cover the cost of living.
It can make it more challenging to achieve your financial goals, such as buying a house or saving for retirement. If you leave your current employer, you may not be able to continue with the salary sacrifice arrangements, which can also impact your future earnings.
Car salary sacrificing is a great alternative to running a fleet of company cars, with a lot less stress and effort involved. Employers carry no risk in car salary sacrificing. If the employee leaves, they are the one who will need to make car payment arrangements with the finance company.
Salary Sacrifice is from your pre-tax income. It's taxed at just 15% which is lower than your take-home pay, so you save straightaway. Contribute and Claim is a contribution that can be made any time, even in June. You then claim it in your next tax return as a deduction.
What Happens if I Salary Sacrifice Too Much? If you salary sacrifice too much, the excess salary sacrifice amount will be assessed and taxed at your individual tax rate for the financial year, minus a 15% tax offset received to account for the contributions tax paid on the salary sacrifice amounts.
If you are renting a property you can salary package your rental costs as long as the lease agreement is in your name and you are 100% responsible for the cost. To get started, you must provide a copy of the lease agreement which should include lease start and end dates along with the rent cost..
This allows you to save for retirement while reducing your taxable income, as the contributions are made before tax is deducted. The main benefit of salary sacrificing into super is that the money is taxed at a lower rate than if it had been paid into your after-tax account.
Is super included in your taxable income? No, the money paid into your super account is not included as part of your taxable income, according to the ATO. This means it is not included or reported as income when you lodge your income tax return at the end of the financial year.
You can salary sacrifice your mortgage repayments if your employer allows it. This means your take-home salary shrinks, but so does the amount of tax you pay. It's a cost-effective benefit but one that most employers can't offer because they have to pay fringe benefit tax (FBT) on the repayments.
One big disadvantage of packaging is that there are significant administration costs and other costs associated with the maintenance of the package.
On the employer's side, salary sacrifice means extra paperwork and a change to the pay system. To reduce this extra workload, many employers restrict their employees to one salary sacrifice negotiation per year – which can make it hard to change your mind if things change from month to month.
There's no limit on how much you can salary sacrifice into super. However, it's important to consider your concessional contributions cap. This is currently $27,500 per financial year.
One of the most basic benefits of all for employers is that, in offering salary sacrifice options, employees will see their place of employment as desirable. They're more likely to attract the best talent and then retain it, which gives the employer a competitive advantage in the long run.
What is salary sacrificing? Salary sacrificing is also known as salary packaging or total remuneration packaging. You and your employer agree for you to receive less income before tax and in return your employer pays for certain benefits of similar value for you. This means you pay less tax on your income.
Salary packaging reduces your gross salary by the value of the items you package along with any associated costs, which in this instance would be the employer's share of the tax savings and the administration fee.
For the 2023 - 2024 financial year, the concessional cap is $27,500 for all individuals regardless of age.
Salary sacrifice allows you to pay for a car from your pre-tax income. The most common way to salary sacrifice to pay for a car is through a novated lease. You buy a used or new car, and your employer covers the lease cost. The lease payments are made from your pre-tax income, which reduces your tax liability.