The concept is quite simple but many Employers and Employees are not sure of the value it offers them.
Instead of receiving the whole remuneration package as Pay As You Go (PAYG) taxable income, the Employee may elect to take part of their remuneration in some other form, typically the payment of regular expenses such as motor vehicle expenses.
The Employee's remuneration can be rearranged into a cash component that is subject to PAYG and fringe benefits that are taxed under the Fringe Benefits Tax (FBT) rules.
The type of benefits permitted and the value in sacrificing these benefits depends on the Employers' status under the legislation and the individual Employee's marginal tax rate.
In many cases, Employees pay less tax under a salary packaging agreement. This saves them money. The amount they save depends on their normal PAYG tax rate and of their type of employment.
Bonafide salary sacrifice arrangements are legal under the Income Tax Assessment Act.
Prior to 1st April 1999 (introduction of Reportable Fringe Benefits), sacrificing was a simple decision but this was further complicated by the introduction of a cap on the tax free component on 1st April 2000. All Employees need to consider the most tax effective strategies that will provide the greatest ongoing benefits.
Employees restructuring their income through a mix of salary and benefits should do so in such a way that the greatest benefit to them is obtained.Sacrifice for the sake of sacrifice may not improve an Employee's financial well being. Care should be taken to ensure sufficient take home pay is adequate to meet normal living expenses.
Statewide Novated Leasing Pty Ltd provides free advice to help Employees determine if salary sacrifice is suitable for their circumstances.