Salary sacrificing for tax savings

While salary sacrificing for superannuation may no longer be necessary, a salary sacrifice arrangement still offers tax advantages when used to pay for certain goods and services from pre-tax salary.

Salary sacrificing and superannuation

Legislation that came into effect on 1st July 2017 means that formal salary sacrificing into superannuation is now unnecessary. Individuals, regardless of their employment status, are able to get a tax deduction for extra superannuation contributions they make from their own ‘after tax’ dollars. There is now no need to put salary sacrifice arrangements in place with your employer.

Salary sacrificing for other goods and services

However, salary sacrificing still has tax advantages for other benefits such as:

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

Where an employee’s gross salary is reduced by payments made for benefits such as the above items on their behalf, tax savings can be made. The reduced gross salary is taxed at rates lower than the pre-sacrificed gross salary, and when the gross salary of the individual is reduced to a lower tax bracket, tax savings can be significant.

Some of the above benefits can have Fringe Benefits Tax consequences, however tax savings from salary sacrificing may still result.

Salary sacrificing and FBT

In addition, if an individual is employed by the following types of organisations, there are Fringe Benefits Tax exemptions subject to a grossed up 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.

Seek advice for the best results

Depending on your personal situation, salary sacrificing can yield cash benefits to the individual. Please discuss your circumstances 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.

We also offer a range of tax advisory services designed to minimise the impact of tax.

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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