Salary Sacrificing (Australia)

You can pay for certain things with pre-tax dollars, as long as its done right

What is salary sacrificing?

“Salary packaging” or “salary sacrificing” is an arrangement between an employer and an employee where the employee agrees to forego (sacrifice) part of their future entitlements to salary, in return for the employer providing certain non-cash benefits.

Done right, these type of benefits effectively come from "pre-tax" dollars and so are not assessable for PAYG , but do need to reported for Fringe Benefits Tax (FBT) purposes.

For the employee, it provides a chance to obtain benefits, before tax. Note though, with a salary reduction it also means the superannuation contribution is reduced.

For employers, salary packaging is essentially a no cost way of providing something of value for employees. As an employer, any reduction in employee wages can also mean a reduction in on-costs like superannuation and payroll tax.

What can be claimed?

Benefits can be separated into the following categories:

  • Concessionally taxed items: New and used cars (via Novated Lease), Motorbikes and Scooters. This can include not only the vehicle cost but also insurance, fuel cards and servicing
  • FBT exempt items: iPad / tablets or mobile phones (work related), In-house benefits (eg. childcare or gym facilities), additional superannuation contributions
  • Otherwise deductible items (ie that would otherwise be able ti included as a deduction in an employee's end of year tax return): Self Education costs, Tools of trade, Computer software, Income Protection Insurance, Professional publication subscriptions, Investment Property expenses (eg. interest), Professional association fees, Workplace giving

Note that if you're a not-for-profit there's a whole lot more that can be claimed.

How does it work by the numbers?
For simpler purchases like a laptop or mobile phone we've put together a handy calculator so you can see what the impact is.

Download the salary sacrifice calculator