What is salary sacrificing?
Salary sacrificing is an arrangement whereby your employee agrees to give you an alternative benefit of a similar value to your wages. Salary sacrificed wages are not counted as taxable income so this tax means that you effectively pay less income tax because your income is lowered.
Options include cars, property, superannuation payments, tools (laptop and mobiles), finance items (like income protection insurance or investment loans) or expenses like school fees.
The term fringe benefits tax (FBT) refers to anything that your employer provides to you other than your normal salary. Only some items incur FBT and the FBT year runs from 1 April to 31 March.
Salary sacrificing into super
A method of salary sacrificing is foregoing wages so that it is put into your super instead. If you make super contributions through salary sacrificing – the maximum you will be taxed is 15 per cent. This means that if your salary marginal tax rate is above 15 per cent then salary sacrificing into your super reduces your tax bill.
Here are 5 tips for salary sacrificing into your super:
- DO NOT EXCEED THE CAP! This is arguably our most important tip. $30000 is the annual contribution threshold for receiving superannuation tax benefits before additional taxes are applied Division 293 tax (also nicknamed the ‘high income earners tax’) is charged at 15 per cent of an individual’s contributions above an individual’s taxable concessional income above the $30000 cap (capped for 2012-13 at $25,000).
- Talk to your employer. Sometimes, salary sacrificing means that your super guarantee is decreased because your base salary is decreased. Make sure that this isn’t the case for your employer. A salary sacrificing arrangement is a contractual agreement so make sure you have a written agreement to protect yourself and make sure that you and your employer have a mutual understanding. For instance, you both need to agree on whether you will receive it along with your pay or whether it will be when your employer makes superannuation contributions.
- Budget! More salary sacrificing means less disposable income. Make sure you are able to manage with this cash flow reduction before you salary sacrifice.
- Don’t forget that this is a semi-permanent decision. You cannot access these contributions until you reach the preservation age or meet a condition of release.
If you are thinking about salary sacrificing then speak to a professional to make sure salary sacrificing is right for you and to learn about your best options.
Packaged Car Lease
Have your ever considered saving by arranging a car lease and salary sacrificing to support the financing and running expenses?
Notably, the fringe benefits tax looks at what percentage of your vehicle is used for business purposes.
How does taxation of the car work?
A novated car lease involves three parties – you, your employer and the financer.
If you cease to be an employee during the novated lease, the obligations and rights will be transferred from your employer to yourself which you can either continue paying independently or have your next employer sign a new Novation agreement.
Usually the vehicle is obtained cost effectively because there is no GST on the purchase (this is claimed by your employer) and because your employer may get a corporate discount.
It is beneficial for you to get professional advice to make sure that your salary sacrificing efforts can help you achieve your wealth management goals.
If you have any queries or questions about salary sacrificing, please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com you can contact us on 9267 0108.
