Salary sacrifice, sometimes referred to as salary packaging, is an arrangement between an employee and employer where the employee forgoes a part of their pre-tax salary in return for fringe benefits of similar value provided by their employer. Here are four vital things to know before you enter into a salary sacrifice agreement, from the tax accountants at Online Tax Return.
Common Salary Sacrifice Purchases
This arrangement reduces your taxable income in your tax return, while providing tax-effective access to a good or service. Commonly, Australians utilise salary sacrifice arrangements for the purchase of cars or car loans – otherwise known as novated leasing. However, you can also salary package items like:
- Health insurance;
- School and childcare fees; or
- Various personal expenses.
At tax return season, the value of all salary sacrifice benefits received from your employer will appear on your payment summary.
Fringe Benefits Tax and Sacrificed Purchases
Some work-related salary sacrifice items are exempt from the fringe benefits tax (FBT). These can include:
- Electronic devices;
- Protective clothing;
- Briefcases; and/or
- Trade-related tools.
FBT exempt items are limited to purchases primarily for work-related use and is typically limited to one item per financial year (unless the item is a replacement). From 1 July 2016, however, this one-item limit does not apply to small businesses.
You can read more about fringe benefits on the Online Tax Return blog here.
Arranging a Salary Sacrifice
Salary Sacrifice agreements are best made when commencing a long-term employment contract. Generally, they are a benefit provided by capable employers and are a written arrangement – stating all terms. While undocumented agreements can exist, they are not recommended.
Online Tax Return Can Help
Before you enter into a sacrifice agreement, it’s important to be fully informed. As a registered tax agent, you can trust the team at Online Tax Return to provide you with arrangement advice, alongside lodging your annual tax return. Contact us today!
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.