What is a salary sacrifice arrangement?
A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.
Income tax-exempt organisations and those that are only assessable on their non-mutual income generally pay FBT on the benefits they provide to their employees, or associates of their employees. Some, however, have an exemption threshold of either $17,000 or $30,000 per employee.
Due to this concession, there are great tax advantages to package a range of expenses. Even where employees are not employed by tax exempt organisations there are still advantages of salary packaging.If you are an employer and your provide fringe benefits to staff, you are required to complete and lodge a Fringe Benefits Tax (FBT) return. The year end for FBT is 31 March. To find out more about FBT click here.
What types of benefits can be included?
There is no restriction on the types of benefits that can be sacrificed. The important thing is that these benefits form part of your remuneration, replacing what otherwise could have been paid as salary. The types of benefits generally provided in salary sacrifice arrangements by employers include fringe benefits, exempt benefits and superannuation.Fringe benefits
Common fringe benefits include:
- cars
- property (including goods, real property such as land and buildings, and shares or bonds)
- expense payments (such as the payment of your loan repayments, school fees, child care costs and home phone costs).
- Living away from home allowance (LAFHA) – if you are required to live away from home to carry out your work duties for an extended period of time, you may want to consider packaging your living expenses. These expenses can include reasonable rent, food (within prescribed limits), lease of household goods, removal costs, private schooling for international workers just to name a few. To find out more visit our web page "Living Away From Home Allowances".
Exempt benefits
A number of benefits are exempt from FBT. The following work-related items commonly provided in salary sacrifice arrangements are exempt benefits:
- a portable electronic device
- an item of computer software
- an item of protective clothing
- a briefcase
- a tool of trade.
The work-related items exemption is limited to:
- items primarily for work-related use
- one item per FBT year for items that have a substantially identical function unless the item is a replacement item.
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All representations and information on this site is general in nature and should not be relied upon as advice. If you require specific advice please contact us.