Salary sacrificing options for small biz
By Emily Chantiri
Salary sacrificing, also referred to as salary packaging, is an arrangement whereby an employee sacrifices part of their wages in exchange of something else of similar benefit
There are a number of benefits for employees who choose to have part of their salary sacrificed. Firstly, the sacrificed component of the total salary package is not the assessable income for taxation purposes. This means that it is not subject to pay as you go (PAYG) withholding tax, because the money is taken out before tax.
The most common is superannuation
The most common salary sacrifice option is superannuation. Employers have a legal obligation to pay the compulsory 9 per cent contributions into the employee's superannuation fund. The amount is paid before tax and is invested into their fund. Superannuation contributions do not incur any fringe benefit tax.
Other salary sacrifice options include car payments, loans, child care costs and school fees.
Fringe benefit tax (FBT)
Fringe benefit tax payments are different to salary or wages. It's a benefit provided with respect to employment. There are a variety of benefits and these include entertainment, private use of a company car, cheap loans provided to employees, gym memberships, school fees and child care fees.
As an employer you are expected to pay FBT on these and you'll need to ensure you fulfill your FBT obligations. It can be a little challenging to understand the ins and outs of FBT, particularly on car leases and payments, so it would be advisable to seek the help of your accountant.
The Australian Tax Office offers a comprehensive explanation of FBT. It states that an employer may provide a car fringe benefit if they make the car they own or lease available to an employee for their private use. For FBT purposes, a car is a sedan, station wagon, four-wheel drive vehicle, panel van or utility (excluding panel vans and utilities with a carrying capacity of one tonne or more). There are some circumstances where car benefits are exempt from FBT, so it is advisable to check out the ATO website or again speak with your accountant.
Most employees welcome the opportunity to package some of these benefits with their salary. Are there other benefits employees can enjoy through salary sacrifice?