Salary packaging is commonly offered by many employers as a method of attracting and retaining staff. For employees, they are significant tax advantages in receiving benefits instead of salary and wages, as it reduces assessment income and provides significant tax benefits.
A salary sacrifice arrangement is an arrangement whereby the employee agrees to give up part of their future salary in return for the employer providing other benefits. The Australian Tax Office (ATO), has determined that for an ‘effective’ salary sacrifice arrangement to be in place, the agreement must in place before the employee is entitlement to the income. An ineffective arrangement can result in fines and additional tax.
The 2 most common forms of salary packaging is (i). salary sacrificing into superannuation and (ii). salary packaging a motor vehicle (using a novated lease).
Salary sacrificing into superannuation means that you are giving up part of your salary, with the employer making the forgone salary as an additional superannuation contribution. This strategy can be a very tax effective way to increase your retirement savings. Instead of paying tax at your marginal tax rate on that portion of your salary , your superannuation contribution will only be taxed at just 15%.
Salary packaging a motor vehicle, can also be a tax effective way to finance the purchase of a new motor vehicle, through a novated lease. You can salary sacrifice the lease repayments so that you are paying for this expense from pre-tax dollars, thereby reducing your assessable income and saving money.
Manifest Financial Wealth can help you to determine whether you can benefit from salary packaging arrangements offered by your employer.