Salary sacrifice arrangements for employees

1. Salary sacrificing is often referred to as salary packaging or total renumerating packaging. It is an agreement between an employer and an employee where an employee agrees to forgo future earnings in return for the employer providing them with benefits of a similar value.
   
2. There are no restrictions on the types of benefits that can be packaged, although arrangements generally include fringe benefits, exempt benefits and superannuation contributions.
   
3. Common fringe benefits include:
   
   • Cars;
   • Property, including shares, goods and real property; and
   • Expense payments such as home loan repayments, school fees and child care costs.
     
4. Exempt benefits include:
   
   • Protective clothing and tools of trade;
   • A portable electronic device;
   • Computer software; and
   • A briefcase.
     
5. Employers are exempt from paying fringe benefits tax (FBT) on exempt benefits, although various conditions must be met as outlined in the guide.
   
6. Salary sacrificed superannuation contributions are not fringe benefits but are considered employer contributions when paid into the employees’ complying superannuation fund.
   
7. Implications of entering into an effective arrangement include:
   
   • The employee paying less income tax on reduced wages;
   • The employer may be liable to pay FBT;
   • Salary sacrificed superannuation will be taxed in the superannuation fund at 15% or 30% depending on the level of income of the employee; and
   • The employer may need to report certain benefits on the employees’ group certificate.