Salary Sacrifice Calculator

What Is “Salary Sacrificing”?

At its most basic, ‘salary sacrifice’ is a term that means an employee sacrifices a portion of their Gross Income, in exchange for a fringe benefit to the same value. This has the overall effect of reducing the employee’s taxable income, but still allowing them to receive items to an equivalent value paid for out of pre-tax income.

How Does Salary Sacrifice Work?

An employee entering into a salary packaging arrangement with an employer is able to sacrifice a portion of pre-tax income to pay for specific items. This means your employer uses the money you earned to pay for an agreed item before tax is applied to the remaining income amount.

Employers are able to use the services of specialist remuneration packaging companies to effect salary sacrifice arrangements with employees. This reduces the administration time for the employer and makes it easier for the employee to seek assistance if required.

While the employee may see a slightly reduced take-home income as a result of this, it should be noted that other things are being paid to compensate for this short-term inconvenience. There are also tax benefits that may apply to some employees in salary sacrificing arrangements.

If the salary packaging arrangement is considered carefully beforehand, some employees could benefit by paying less tax at the end of the financial year, even though they still receive the benefit of spending that original money on something of equal value.

What Can Be Paid For Using Salary Sacrifice?

In most cases, remuneration packaging companies can arrange for contributions into Superannuation to be paid via salary sacrifice. The amounts being put into the employee’s complying Super fund are paid for using pre-tax dollars. This means the amounts accumulating haven’t been taxed yet, so it’s important to speak to an accountant about the impact this can have.

Most employers like salary packaging into Super funds, simply because the contributions made are tax deductible for them. As long as the employee’s super fund is a complying Superannuation fund, they won’t need to pay Fringe Benefits Tax on those contribution amounts. They also don’t need to report those payments as being fringe benefits when they fill out your Group Certificate or payment summary.

Unfortunately, some employers may not like the idea of salary sacrificing into a non-complying Superannuation fund for their employees, as they will have to pay Fringe Benefits Tax on those amounts. The amounts paid in are considered employer contributions. They’re not actually voluntary extra contributions from the employee. The employer is also required to report the contribution amounts on the employee’s Group Certificate or payment summary as a fringe benefit payment. Obviously, it makes sense to salary sacrifice into a complying Superannuation fund.

There are also plenty of employees taking advantage of the ability to obtain a car lease through salary packaging. Many employers understand the benefits of allowing some employees to seek Novated Car Leases. This is an arrangement where the employer is responsible for making the repayments on a car for the employee, but the money for those payments is taken out of the employee’s pre-tax earnings.

Effectively, this gives an employee the benefit of a new car, without the inconvenience of applying for a bank loan. The employer will have to pay Fringe Benefits Tax on the amounts used to cover the repayment costs.

Other expenses that may be paid include loan repayments, school fees and some child care costs.

Ideally, any employee wanting to get into a salary packaging agreement should discuss the exact details with the employer. It’s important that the employer does offer the type of salary packaging the employee is seeking, but also that the employee realises the impact this agreement can have on taxable income.

Benefits of Superannuation Contributions via Salary Sacrifice

The biggest benefit of choosing to salary sacrifice into a Superannuation account is that the employee doesn’t pay Fringe Benefits Tax on the fringe benefits received.

Your employer pays the extra amounts into your Super account. This effectively reduces your taxable income, so you end up paying less tax. However, you also have more money accumulating in your retirement fund, which gives you the benefit of more money when you retire.

There may be a downside, however. Any contributions put into a Super fund via salary sacrifice contributions may be taxed at 15% when you withdraw them at retirement. Always speak to an accountant or a financial advisor and check that it’s in your best interests before proceeding with this arrangement.

It’s also possible to use a salary sacrifice calculator to estimate the potential benefits and returns available to an employee before proceeding with the arrangement.

Case Study:

In the case study above, both employees earn the same amount of money before tax. However, one is salary sacrificing into a complying Superannuation fund. Even with the in-fund tax of 15% applied to those contributions, the employee using salary packaging ends up paying much less tax overall, and has more money in a retirement fund for the long term.

Benefits of Salary Sacrificing for a Novated Car Lease

Some employers are happy to offer their staff the ability to salary sacrifice into payments for a new car. This is especially true for employees who travel a lot of kilometres in a year, or those on higher incomes.

The benefit of entering into a Novated car lease arrangement through salary sacrifice is that the employee has control over the type of car being purchased. The employer may set an agreed value for the price of a car, but every payment made on that Novated Car Lease is done by the employer. The money for those repayments is deducted from the employee’s pre-tax income.

This has two effects: the employee’s taxable income is reduced, and the employee has a new car that is effectively costing less than if it was purchased using after-tax dollars.

There are two main types of lease that can apply to employees. These are a Fully Maintained Novated Lease, or a Non-Maintained Novated Lease.

A Fully Maintained Novated lease means that the employer is willing to take responsibility for paying the finance repayments on the car, plus the fuel costs, running costs, maintenance, insurance and registration.

A Non-Maintained Novated Lease means that the employer is only taking responsibility for making the finance payments. The employee is responsible for all operating and running costs associated with owning that car.

In both of these cases, the costs and payments do still come directly out of the employee’s pre-tax income. This is a reportable Fringe Benefit, so the employer will need to report the amounts paid on a Group Certificate or payment summary. Fringe Benefits Tax may apply for the employer on the amounts paid into the packaging arrangement.

Before entering any salary sacrifice agreement, always take the time to check a good salary sacrifice calculator. Work out exactly what the effects of your package arrangement will be on your taxable income, and how it will affect your take-home income. Be sure to speak to an accountant or financial advisor to ensure that your decisions will be right for your long-term financial goals.

Case Study:

In the case study above, both employees earn the same before-tax salary. However, Jack has chosen to salary sacrifice some of his pre-tax income for a Novated Lease on a new car. This reduces his taxable income, reduces the amount of tax he will pay, and still gives him the benefit of having a car that suits his purposes.

In the event that Jack leaves that company, he is able to transfer the lease over to the new company, as long as the new employer has a similar salary packaging arrangement in place.

Working with a salary sacrifice calculator can give you a fair estimate of the amount of money you could potentially save. It can also give you a clearer idea of the costs associated for your employer. Obviously, it’s in your best interests to discuss these things with your employer to come to a mutually beneficial arrangement for your salary packaging needs.

Featured Personal Loans

Personal Loan	Details	Min Interest Rate	Min Comparison Rate	Min Loan Amount	Min Loan Terms	Apply Fee
ME Bank Personal Loan	A low rate personal loan from ME Bank with no application fee for a limited time.	13.59%	13.81%	$5000	1 year	$0
Aussie Personal Loan	A smart way to consolidate your bills to save time and money so you can pay for your holiday, a wedding or renovate the house.	13.90%	14.84%	$3000	1 year	$199
Sugar Money Personal Loan	Fixed rate personal loan with flexible options to get you funds when you need it.	13.99%	15.00%	$3000	2 years	$250
bankmecu Personal Loan	A convenient and fast way to purchase a car or debt consolidation with affordable rates and fees.	13.49%	14.55%	$1000	1 year	$150

Related posts:

1. Novated Lease Calculator
2. Salary Packaging And Novated Lease Guide
3. Buying A Car To Reduce The Amount Of Tax You Pay
4. Car Lease Guide To Car Leasing Options
5. Business Car Loans