Salary sacrificing means allotting a portion of an individual’s pre-tax salary to be exchanged with a benefit that is of similar value. Also referred to as salary packaging or total remuneration packaging, this requires an individual to come to an agreement with their employer prior to enjoying its benefits.
The Australian Taxation Office provides the specifics of this agreement. It’s important that an individual gets everything clear–and in writing–because you will permanently forego the sacrificed salary and also because they can attract Fringe Benefits Tax.
According to the ATO, there’s no restriction to the types of benefits that can be included because these would simply replace what would have been paid to the individual as wages.
The benefits are categorised into three:
Sacrificing salary for super is:
The annual cap for pre-tax super contributions for 2018/19 is $25,000.
This amount includes all salary sacrifice contributions, regular employer-initiated super contributions (which is usually 9.5%), and personal contributions where one intends to claim a deduction.
Bear in mind that for individuals whose income + pre-tax super contribution is under $250,000 p.a., they will pay 15% tax on salary sacrificed contributions.
On the other hand, those with income and pre-tax super contributions that exceed $250,000 p.a. will have to pay 30% tax on salary sacrificed contributions.
Employers and individuals need to come to a clear agreement on all the terms of a salary sacrifice deal. It is highly recommended to get it in writing since an undocumented arrangement may cause difficulties in establishing the facts of the deal if issues arise in the future.
Remember that employees can renegotiate a salary sacrifice arrangement at any time.
There are tax issues you need to be aware of, however. Since the amount sacrificed into super is considered concessional contribution and will be taxed at a flat rate of 15%
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