Salary sacrificing is a good way for people to generate a tax saving on the income they earn from an employer.
A salary sacrifice arrangement, or salary packaging, is an arrangement between an employer and an employee where the employee agrees to ‘sacrifice’ part of their salary for non-cash benefits of a similar value in pre-tax dollars. There is no statutory limit on how much remuneration can be salary sacrificed.
One useful option can be to make additional superannuation contributions via salary sacrifice, which will boost retirement savings for the future while creating tax benefits now. Another specific use of such arrangements is salary sacrificing into the new First Home Super Saver (SHSS) scheme.
Salary packaging is most effective for mid to high income earners who can help reduce their tax rate through such arrangements. In particular, anyone who has the opportunity to package FBT exempt or concessionally taxed items should consider salary sacrificing, especially those working for charities, hospitals or not-for-profit organisations.
Keep in mind that salary sacrifice arrangements can only be put in place before the income has been earned. For example, it is difficult to salary sacrifice a bonus at the end of a financial year if the bonus is linked to performance in that financial year, unless an effective salary sacrifice arrangement has been put in place at the beginning of the year that includes any bonus.
This article is authored by Helena Yuan, Tax Consulting Manager, HLB Mann Judd Sydney.