Sacrifice your salary

3 min read

"Why salary sacrifice? Well, because it's a way of enjoying great savings by paying less tax. Want to know how it works? 

Why it pays to do it

Salary sacrificing, also called salary packaging, is an agreement you make with your employer to forgo some of the wages you haven't earned yet in exchange for benefits of a similar value. To work, the agreement must be made before the income is earned.

So why do it?

Salary packaging can reduce your taxable income which is always a good thing. It allows you to buy a range of things you might want out of your pre-tax salary rather than your after-tax salary, which can leave you with more money in your bank account. Salary packaging is allowed by the ATO (The Australian Tax Office).

What kind of things can be packaged?

There's actually no limit to what can be packaged but salary packaging certain benefits can give you more savings than others. Popular salary packages often include cars, car loans, school fees, health insurance or your super. Really it depends on what your particular employer offers, so ask them what they provide. Other items that you can package include, laptops, professional memberships and subscriptions, newspapers, magazines and journals, self-education, childcare, relocation expenses, remote area housing, living away from home allowance and home office expenses. You can also package employer perks such as company products and services and car parking.

If you travel for work you can package airline lounge membership, taxis and travel for development. And you can include tools for your job including mobile phones, software, and uniforms and briefcases. And you can also package financial items such as income protection insurance, investment loans and financial/taxation advice.

Salary sacrifice and super

Contributing your pre-tax salary to your super fund can save you tax. Contributions are taxed in the super fund at 15%, which may be less than your normal tax rate, which means salary sacrificing into super can be a long-term wealth strategy to grow your retirement fund faster. As a bonus, the benefits of redirecting some of your pre-tax income into super works for you and your employer. Because salary sacrifice contributions are treated as employer contributions your employer can usually claim a tax deduction on the amount of salary sacrificed contributions they contribute to your super fund on your behalf.

So salary sacrificing is a win/win and can mean a bigger super balance in the future.

Salary sacrificing can be complex so speak to a financial adviser about how best to set it up for your personal circumstances.

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This information is current as at 14/04/2015.

© BT Financial Group - A Division of Westpac Banking Corporation. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied up on as such. This information does not constitute financial advice. It has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation and needs. Information in this blog that has been provided by third parties has not been independently verified and BT Financial Group is not in any way responsible for such information.