Salary sacrifice

		Salary sacrifice (Australia)
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These suggestions are for guidance purposes only
and are not to be considered financial advice.

Seek your own advice and/or check out the
Australian Tax Office website for up to date detail.

Why?

Employees pay income tax on a reduced salary figure.
Employers may wish to attract/retain valued employeees.

Packaging aspects

Packaging usually covers 3 aspects:

Items subject to fringe benefit tax (FBT), to be paid by employer
and can include cars, property, shares, school fees, child care etc.

Items exempt from FBT,
like 1 notebook PC/year and a mobile phone used for work.

Superannuation payments. (Various rules apply)

Australian Taxation Office example

Sam earns $65,000 a year.
In a salary sacrifice arrangement,
his employer will provide the use of a $35,000 car
and pay all the associated running expenses of $11,500.

The salary packaging provider calculates that:

the taxable value of the car fringe benefit will be
$3,850 if the car travels between 25,000 and 40,000 kms
in the FBT year, and
Sam will sacrifice:
$14,205 if no employee contributions are made, or
$7,009 if employee contributions of $3,850 are made.

The following table illustrates how salary sacrificing
and employee contributions work by comparing
the net disposable income for Sam in three scenarios.

no salary sacrifice arrangement
a salary sacrifice arrangement without any employee contributions, and
a salary sacrifice arrangement where employee
contributions are provided.

	1. Salary only (no packaging)	2. Salary + car (without employee contributions)	3. Salary + car (with employee contributions)
Annual remuneration	$65,000.00	$65,000.00	$65,000.00
Less salary sacrifice	$ NIL	$14,205.00	$ 7,009.00
Taxable income	$65,000.00	$50,795.00	$57,991.00
Less income tax (rates as at 1/7/06)	$14,850.00	$10,588.50	$12,747.30
Less 1.5% Medicare	$ 975.00	$ 761.92	$ 869.86
Income after tax / salary sacrifice amount	$49,175.00	$39,444.58	$44,373.84
Less Employee contribution	NIL	NIL	$ 3,850.00
Less car expenses	$11,500.00	$ NIL	$ NIL
Net disposable income	$37,675.00	$39,444.58	$40,523.84
Reportable fringe benefits amount for employee payment summary	$ NIL	$ 7,196.00 (car fringe benefit taxable value of $3,850 x 1.8692)	$ NIL

Other useful stuff ....

	Curtin University's information page on salary packaging Bluescope Steel salary packaging guidelines SUPA NOVA salary sacrifice car packaging


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