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?
So, first things first. What is salary sacrifice?
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).
Who can access salary sacrifice?
Not-for-profits (NFPs) 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.
What types of benefits can I salary sacrifice?
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
So, what benefits are most commonly packaged?
- 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, rego and insurance using pre-tax dollars. The higher the business use of the car (you will need to keep a log book) the better. 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.
- Living expenses: Some employees, such as health care workers (nurses) or full time member religious order, may have the option to set aside a portion of your pre-tax salary each FBT year to contribute towards living expenses such as mortgage repayments, rent, utility bills and groceries. On top of this, you may be able to include meal costs with your pre-tax dollars.
For more information about salary sacrificing, chat to your Accountant or Financial Planner, or contact our office on (07) 4632 1966 or firstname.lastname@example.org.
GENERAL ADVICE WARNING | The information provided in this article is for general information purposes only. It is not intended to be, nor should it be read as specific taxation advice. Before acting on any of the information contained in this article you should obtain advice from a specialist advisor, which is appropriate to your specific business needs, objectives and financial situation.