What is a salary sacrifice arrangement?
A salary sacrifice arrangement is also commonly referred to as salary packaging. It is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.
What types of benefits can be included? There is no restriction on the types of benefits that can be sacrificed. The important thing is that these benefits form part of your remuneration, replacing what otherwise could have been paid as salary. The types of benefits generally provided in salary sacrifice arrangements by employers include fringe benefits, exempt benefits and superannuation.
Fringe Benefits - common fringe benefits include: cars, use of property (including goods, real property such as land and buildings), and expense payments (such as the payment of your loan repayments, school fees, child care costs and home phone costs).
Exempt benefits - a number of benefits are exempt from FBT. The following work-related items commonly provided in salary sacrifice arrangements are exempt benefits: • a portable electronic device • an item of computer software • an item of protective clothing • a briefcase • a tool of trade.
Superannuation - salary sacrificed superannuation contributions are considered to be employer contributions which, when paid for an employee to a complying superannuation fund, are not fringe benefits.
As an employee you need to be aware how entering into a salary sacrifice arrangement with your employer will affect you:
- you pay income tax on the reduced salary or wages
- your employer may be liable to pay FBT on the non-cash benefits provided
- salary sacrificed superannuation contributions are classified as employer superannuation contributions (rather than employee contributions) and are taxed in the superannuation fund at 15%
- your employer may be required to report certain benefits on your payment summary*.
* This means that amounts Salary Packaged are effectively added back to your income for the purposes of calulating child support obligations, entitlement to certain income-tested government benefits, the Medicare levy surcharge, deductions for personal super contributions, the super co-contribution, spouse contributions offset, the mature age worker tax offset, Higher Education Loan Program (HELP) and Financial Supplement repayments.