Salary sacrifice is also commonly referred to as a salary packaging or total remuneration packaging. It’s an arrangement between an employer and employee, where the employee agrees to forego part of their future salary or wage in return for some other form of non-cash benefits of equivalent cost to the employer.
Non-cash benefits provided may include:
An effective salary sacrifice arrangement must:
Under an effective salary sacrifice arrangement:
The payroll tax treatment of an effective salary sacrifice arrangement is:
For more information, read our common errors page.
An employee’s current salary is $80,000 per annum. The employee and employer negotiate a salary sacrifice arrangement for a car under a novated lease arrangement. As a result, the employee’s taxable salary is reduced to $68,000 per annum. The taxable value grossed up by the type 2 factor of the car for FBT purposes is $5,250. Payroll tax is payable on the $68,000 salary and the FBT taxable value of $5,250.
An employee’s current salary is $70,000 per annum. The employee and employer negotiate a salary sacrifice arrangement for a $3,000 laptop for work purposes. As a result, the employee’s salary is reduced to $67,000 per annum. As the laptop is exempt from FBT, the payroll tax is payable only on the $67,000 salary.
An employee’s current salary is $60,000 per annum. The employee makes after-tax (personal) superannuation contributions of $5,200 per annum. The employee and employer negotiate to replace the after-tax superannuation with salary sacrifice (pre-tax) contributions. As a result, the employee’s salary is reduced to $54,800 and the employer will make a pre-tax superannuation contribution of $5,200. Payroll tax is payable on $60,000 ($54,800 salary plus the pre-tax superannuation contribution of $5,200).