Understanding the ins-and-outs of salary sacrifice is no easy feat. Like most people, you probably know that it has benefits to your take home pay but do you really understand how it works, what limits apply and whether it's something you can elect to do in your workplace?
When entering into salary sacrifice, you as the employee, agree to forgo part of your salary while your employer provides you with benefits (other than salary) of a similar value. The idea is to try to package the other benefits in such a way where there is an overall benefit (such as more take home pay).
Don't think only Not-for-profits (NFP's). NFP's often use salary sacrifice as an employee benefit to help bridge salary gaps and government agencies provide it as a perk to their staff, however, it is important to note that any employer can offer it. Limits may apply on what your employer is willing to offer and reasons for this can include Fringe Benefits Tax (FBT) and set-up fees. For details on what you can salary sacrifice, chat to your employer.
There are a range of benefits that might be offered by your employer, however, it is important to consider your individual situation and assess whether or not, various options will actually provide an overall benefit. Some benefit options can include:
- Health insurance;
- School and childcare fees;
- Work-related items such as portable electronic devices, computer software,
tools of the trade, protective clothing and briefcases; and
Vehicles: Opting for a novated lease means that you can have your employer pay for your car lease and other expenses such as the petrol, maintenance, rego and insurance using pre-tax dollars. Just be aware that once the lease is over, if you choose to keep the vehicle a payout figure will apply. Alternatively, when the time comes, you can sign up for a new lease.
Superannuation: Leveraging salary sacrifice to boost your superannuation can be a clever option for high income earners because contribution to super attract a lower rate of tax, 15%. It is important to understand that by contributing to your superannuation in this way is considered concessional and a limit of $25,000 applies per annum. Concessional contributions over this amount are subject to the excess concessional contributions (ECC) charge.
Portable electronic devices: Being free from FBT, devices such as mobile phones, iPads and laptop computers can be an easy choice. Just remember that items must be primarily for work use and a limit applies to one item per FBT year for items that have a substantially identical function, unless the item is a replacement item. Concessions to small businesses can apply, so chat to your employer or accountant for the full run down.
Whilst salary sacrificing will reduce your before tax pay and therefore pay less tax, remember some things that you may choose to salary sacrifice will be reported on your payment summary, e.g. superannuation. You will not be taxed on these amounts, but it will be included in your income for threshold based calculations such as HELP repayments, child support payments, certain government benefits and the Medicare levy surcharge.
For more information about salary sacrificing, call your Accountant or Financial Planner, or contact Tracy Baxendine on (08) 8535 5999 or email@example.com
Author – Tracy Baxendine
GENERAL ADVICE WARNING | The information contained in this article is general and is not intended to serve as advice. No warranty is given in relation to the accuracy or reliability of any information. Readers should not act or fail to act on the basis of information contained herein. Readers are encouraged to contact a professional adviser for advice concerning specific matters before making any decision.