blog: What Does A Salary Sacrifice Have To Do With Your Income Tax? Everything, If Done Right.

Did you know that salary packaging could reduce the amount of income tax you may have to pay as an individual?

If you agree to salary packaging, you and your employer can “package” your salary into an arrangement of less income received after-tax, in return for your employer paying for benefits out of your pre-tax salary (which could include things such as a car or a phone).

If you, for example, received a yearly salary of $100,000, you and your employer could come to an arrangement of packaging the salary into $80,000 per year as income, and $20,000 as a car benefit. What this arrangement does is reduce the actual taxable income to $80,000, which may benefit you in that you may end up paying less income tax.

Benefits that you may be able to receive in a salary packaging arrangement can include fringe benefits, exempt benefits and super. In the case of fringe benefits, your employer will pay Fringe Benefit Tax on those benefits, whereas exempt benefits will not require them to do so.

If you elect instead to put some of your pre-tax income into your super, your fund will tax those contributions at 15%, which is the same as what your employer contributions are taxed at. This may end up being taxed less than your actual marginal tax rate.

Salary packaging is generally more effective for those who earn a salary in the middle to higher income brackets. If you want to find out whether or not salary packaging may be a viable option for you, you should seek out professional tax advice. You can come and speak with us to discuss this as an option for you.