There has been a lot of debate over the past few years about whether salary sacrificing produces worthy benefits for employees and indeed employers. There are certainly benefits from salary sacrificing, but there are also limitations, so it is important to find the right package for you.
Many employees are not aware they have access to a salary package and it can be highly beneficial for those looking to boost their retirement funds.
Salary sacrificing can save workers thousands of dollars a year in tax, and can be used on cars, computers, trade tools, childcare, mobile phones, insurance and even airline lounge memberships. These costs are deducted from the workers’ salary before tax is deducted, which means they pay less tax on their income.
Vehicle Solutions Australia director Greg Harris says, “The process is very simple and costs nothing for any employer”.
“However, some employers still resist the service as they think it will cost them time and money processing all of the paperwork. However, most salary packaging services are completely outsourced”.
Employers can usually claim a tax deduction on the amount of salary sacrificed contributions they contribute to your super fund on your behalf.
Harris says even self-employed people can salary package “as long as you pay yourself a wage and pay tax on that wage”.
A salary package certainly offers more benefits to some than others. The biggest winners in the salary sacrifice stakes are people who work for public hospitals or not-for-profit organisations. They are also allowed to package rent, groceries, entertainment, credit card bills and other personal expenses up to a set limit.
The biggest drawback of salary sacrifice is the limit on assessable income. Salary sacrifice may not be suitable for everyone, so it is important that you find the right package for you.
The Australian Taxation Office gives us an example of how a salary package can work:
Sally and Zoe both started work at Green Thumb Gardening, earning $45,000 a year. Zoe made a salary sacrifice arrangement to sacrifice $10,000 of her income into her complying super fund. Sally did not salary sacrifice any of her salary. The following table shows the difference between Sally and Zoe’s assessable income and rates of tax at the end of the 2012-13 income year:
It is always best to talk to Fortis Accounting Partners about your individual tax structure before approaching your employer about a salary package. If you’d like to have a chat with a knowledgeable and experienced accountant with regard to any of the above information – please don’t hesitate to get in touch with the team on 02 9267 0108. Alternatively, you can pop us an email at info@exemplary-financial.flywheelsites.com and we’ll get back to you to answer any questions that you may have.
