What is salary packaging?

An employee agrees with their employer to forego part of their future salary or wages in return for the employer providing benefits of a similar value.  By paying for items out of pre-tax salary the employee can reduce taxable income.  Benefits typically provided include cars by way of novated lease, provision of property (such as a computer) or payment or reimbursement of expenses.

As an employee, you need to be aware of how entering into a salary sacrifice arrangement with your employer can affect you:

·         you pay income tax on the reduced salary or wages

·         your employer may be liable to pay FBT on the non-cash benefits provided

·         salary sacrificed superannuation contributions are classified as employer superannuation contributions (rather than employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject

·         your employer may be required to report certain benefits on your payment summary

For the employer, salary packaging has some advantages, such as the ability to attract employees and may act as an incentive to reward employees.  Benefits that employees can package can be dependent on the type of organisation as well as the items the employer is willing to consider.

There can be additional administration costs to the employer in making sure that it is all processed correctly.

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Salary sacrifice and salary packaging

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