Salary Sacrifice

[Guest rowy]

Hi, can anyone explain the salary sacrifice to me? I am a Midwife and see this on job adverts all the time over here? penny

[Guest Chelseadownunder]

Hi Penny,

I hope this helps, Steve. ( I do allot of Salary sacrifice for nurses here for example)

 

Salary sacrifice is an arrangement where you agree to forego part of your future salary or wages in return for your employer providing benefits of a similar value.

The contractual agreement with your employer to alter your salary package by exchanging part of your future salary or wages for another benefit is called a ‘salary sacrifice arrangement’.

 

 

 

 

 

 

You can sacrifice your salary or wages into a variety of benefits including:

• super (Superannuation/Pension in the UK)
  
• car fringe benefits, and
  
• expense payment fringe benefits, such as
  
  • school fees
    
  • child care costs, and
    
  • loan repayments.
    

Benefits of salary sacrificing super contributions

 

If you make super contributions under an effective salary sacrifice arrangement, there may be benefits for both you and your employer.

Super contributions are not a fringe benefit

If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered a fringe benefit for tax purposes.

 

 

 

 

 

 

Your employer will not:

• be liable to pay fringe benefits tax (FBT) on the super contributions, and
  
• need to include the super contributions as a reportable fringe benefit amount on your payment summary.
  

Salary sacrificed contributions are treated as employer contributions.

If salary sacrificed super contributions are made to a non-complying super fund, the contributions will be a fringe benefit.

 

 

 

 

 

 

Your employer will:

• be subject to FBT on the sacrificed amount, and
  
• need to record the sacrificed amount on your payment summary as a reportable fringe benefit.
  

Super contributions are deductible for your employer

Salary sacrifice reduces your assessable income

The sacrificed component of your total salary package is not assessable income for taxation purposes. This means that the sacrificed component is not included as income on your payment summary and is not subject to pay as you go (PAYG) withholding tax.

Super contributions are concessionally taxed in the fund

If you make super contributions through a salary sacrifice agreement, these contributions are taxed in the super fund at a maximum rate of 15%.

Generally, this amount of tax is less than what you would pay if you did not enter into a salary sacrifice agreement and instead were subject to PAYG withholding tax on your earnings.

However, the concessional tax treatment is limited to a set amount of contributions made each income year.

Example

 

• On 1 July 2007, Sally and Zoë started work at Green thumb gardening, earning $45,000 a year. Zoë entered into a salary sacrifice arrangement with her employer to sacrifice $10,000 of her earnings into her super fund. Sally did not salary sacrifice any of her salary.
  The following table shows the difference between Sally’s and Zoë’s assessable income and rates of tax at the end of the 2007–08 income year:
  

• 
  
  • Sally------------------Zoë
    
  • Remuneration
    
  • $45,000 -----------------$45,000
    
  • Less super salary sacrifice
    
  • Nil -------------------------$10,000
    
  • Assessable income
    
  • $45,000------------------ $35,000
    
  • Deductions
    
  • Nil ----------------------------Nil
    
  • Taxable income
    
  • $45,000------------------ $35,000
    
  • Income tax (using the 2007–08 tax rate)
    
  • $7,950-------------------- $4,550
    
  • Medicare Levy
    
  • $675------------------------- $525
    
  • Tax on super sacrificed (15% in the fund)
    
  • Nil -------------------------- $1,500
    
  • Total tax and Medicare levy paid
    
  • $8,625----------------- $6,575
    

[Guest rowy]

Thank you Steve, you have given me so much information. Brilliant, cheers, Penny

[Mr Technical]

Hi, can anyone explain the salary sacrifice to me? I am a Midwife and see this on job adverts all the time over here? penny

 

I get salary sacrifice in my job and when we first arrived we offset it against our rent, but now we offset it against our mortgage. The thing to remember is different organisations will have different things you can put it towards. It is all done for me, I just provide my mortgage payment details to prove I am putting it to what I say I am! My employer has a big list of things you can offset it against even including your credit card bill!

 

Organisations that offer full salary sacrifice may be charities or places like that, that maybe can not offer huge salaries so they use salary sacrifice to increase your pay and make the salary on offer more attractive.