Salary packaging for small business owners and employees

Effective salary packaging options are vital to entice and retain quality staff and obtain the maximum benefit from your business structure.

Recent legislation changes have made salary packaging for superannuation contributions obsolete. This is due to the ability for individuals, regardless of their employment status, to obtain a tax deduction for superannuation contributions from after tax dollars. This change removes the need to set up salary packaging for superannuation contributions and have the agreements in place from the start of the financial year. Self-employed individuals no longer have to worry about the deductibility of their personal concessional superannuation contributions if they have small employment income during the year, as the discriminatory 10% rule on employment income has been removed.

Salary sacrificing via a salary package still has tax advantages for business owners and their employees. Salary sacrificing is where an employee’s gross salary is reduced by payments made for other benefits on the employee’s behalf.

Benefits can include the following:

  • Motor vehicle leasing and/or running costs
  • Insurance
  • Laptops
  • Mortgage/rent payments
  • Child care fees

Tax savings result from a reduced gross salary which is then taxed at rates lower than the pre-sacrificed gross salary.

When setting up an effective salary packaging arrangement you must ensure that any package is an effective salary packaging arrangement. You must ensure the package has been agreed in writing prior to the employee performing the work. Larger tax savings can result when the gross salary of the individual is reduced to a lower tax bracket.

Some of the above benefits can have Fringe Benefits Tax consequences depending on the business circumstances, however tax savings from salary sacrificing may still result. Specific Fringe Benefits Tax consequences should be discussed with your local Accru advisor to provide detail specific to your business.

In addition to this, if an individual is employed by the following types of organisations, there are Fringe Benefits Tax exemptions subject to a gross cap of $30,000 or $17,000 depending on the employer:

  • Registered public benevolent institution
  • Registered health promotion charity
  • Public and non-profit hospital
  • Public ambulance service

This effectively means benefits that would usually be subject to fringe benefits tax (such as mortgage or rent payments) can be sacrificed up to the applicable threshold with no additional fringe benefits tax implications.

Depending on your personal situation, salary sacrificing can yield cash benefits to the individual, however the business owner must ensure that the arrangement is an effective salary packaging agreement.

Having these options available to employees may be critical in attracting and retaining the best staff for your business. Please discuss your circumstances and any salary packaging arrangements with your local Accru advisor. We can calculate the tax and cash benefit of salary sacrificing for you to ensure you make an informed decision when it comes to choosing to salary sacrifice.

Everyone’s situation is unique. Contact your local office and see how Accru can help you today. 

About the Author
Melissa McCrystal , Accru Rawsons Brisbane
Melissa assists primarily small and mid sized businesses with all aspects of their accounting, tax and audit. She has a particular focus on business valuations and self managed superannuation funds, helping businesses, as well as professionals and investors, to achieve their long-term goals.
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