A Complete Guide to Salary Sacrificing aka "Salary Packaging"
You can think of Salary Sacrificing as a financial trade-off:
- You Choose: Pick the benefit you want, like boosting your super or leasing a car.
- Your Employer Acts: Your employer deducts the cost from your pre-tax income and covers the expense for you.
- You Save: The amount you sacrifice reduces your taxable income, meaning you pay less tax.
Quick Example:
- Before Salary Sacrificing: Earn $100,000 a year.
- After Salary Sacrificing $10,000 (to a car and ongoing car costs): Your taxable income is now $90,000.
- Result: Now that only $90,000 of your income is taxable, you'd pay $3.3k less in tax, meaning you effectively got $10,000 in value, for $7.7k in cost.
What Can You Salary Sacrifice?
1. Superannuation Contributions
The classic choice. Add more to your retirement fund while enjoying immediate tax benefits.
2. Novated Lease
Drive smarter. A novated lease lets you use pre-tax dollars to cover a car’s costs—from repayments to fuel—saving thousands over time.
3. Work-Related Tools
Laptops, phones, and tablets that keep you productive? They’re salary sacrifice-friendly.
4. Other Benefits
Depending on your employer, you could access:
- Gym memberships.
- Airline lounge passes.
- Professional memberships.
Things to Keep in Mind
1. Contribution Caps
Exceeding the concessional cap for super could trigger extra tax penalties. Stay informed to maximise benefits without overstepping limits.
2. Impact on Cash Flow
With less take-home pay, budgeting is key. Ensure you can comfortably manage day-to-day expenses.
3. Employment Policies
Not all employers offer salary sacrificing, and available benefits vary. Always check what’s on the table.
Is Salary Sacrifice Right for You?
Yes, if you want to:
- Save on tax.
- Get more from your income.
- Invest in long-term benefits like retirement savings or a novated lease.
But always tailor your approach to your unique goals and circumstances. Consider consulting with a financial advisor to ensure it’s the best fit for your needs.
Frequently Asked Questions
How much can I save with salary sacrificing?
Your savings depend on your income, tax rate, and the benefits you choose. A salary sacrifice calculator can help you estimate your potential gains.
Does it affect government benefits?
Yes, reducing your taxable income might impact entitlements like Medicare or Family Tax Benefits. Be sure to factor this into your decision.
Can anyone salary sacrifice?
Not all employers offer this benefit, so check your workplace policies first.
Make Your Income Count.
Salary sacrificing isn’t just about saving money—it’s about being smarter with what you earn. Whether it’s driving the car you’ve always wanted, investing in a secure retirement, or equipping yourself with the latest tech, it’s a strategy designed to work for yoReady to explore your options? Reach out to your HR team or start a conversation with a financial advisor.
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Related Questions:
Yes, employers can claim the GST on lease payments and running costs, helping to reduce BAS liability. This applies if your business is GST-registered and you comply with record-keeping requirements.
The next steps will depend on whether employees are staying with the same business entity, or transferring to a new one. The outcome is usually the same though - existing salary packaging agreements can continue with minimal disruption, but will requirement communication with your leasing provider.
The main consideration is the time required for payroll adjustments, but with modern systems and provider support, this is usually minimal. The benefits—like happier employees and potential payroll tax savings—often outweigh any minor drawbacks.
Self-employed individuals can access novated leasing if they pay themselves a salary through a business structure like a company or trust. For sole traders, a shift to a company structure, or alternative leasing options will be better suited.
No, offering novated leasing is cost-neutral for employers. Employees cover the lease costs through their salary, and businesses may even save on payroll tax when implemented at scale.
A novated lease shifts costs and ownership to the employee, offering tax savings and flexibility, while a company car remains a business asset with full employer responsibility. Learn which option works best for your business on our detailed page.
No, there’s no minimum size. Novated leasing is available for businesses of any size, from sole traders to large corporations.
FBT is a tax (with a rate at 47%) applied to fringe benefits (incentives beyond salary/wages received from an employer). A non-electric car under a novated lease is a fringe benefit (electric cars are completely FBT exempt in Australia).
The employer is responsible for paying the FBT, but at Clear Lease - we use the employee contribution method (contributing post-tax funds) to offset any FBT to zero.
This works because we can tax deduct any expenses incurred in the arrangement and maintenance of a vehicle as a fringe benefit. We work out the right mix of pre-tax and post-tax payments the employee needs to make to make sure the FBT liability is negligible for the employer.