Put simply, salary packaging means that you sacrifice part of your pre-tax salary to pay for certain items and increase your available net pay based upon the tax savings that you make from deducting the cost from your pre-tax salary. Prior to fringe benefits tax becoming part of the Australian taxation system, many more items were available for sacrificing but these days, these items have become much more restricted and could be subject to FBT, making it more expensive for the employer to provide.
Items that can still be paid, but with FBT attached although certain not for profit organisations will be FBT exempt:
- Salary Sacrifice for cars. Novated leases are common in some organisations
- Health insurance
- School fees
- Childcare fees
Items that can be paid but are exempt:
- Portable electronic devices
- Computer Software
- Protective clothing
- Tools of the trade
Probably the most popular item that is salary sacrifices is Superannuation. Due to super being taxed in funds at 15%, it often makes sense that people pay their spare salary into a super fund on a salary sacrifice basis. If you are looking to do this, speak with your employer and they can arrange it via the payroll system. Just be careful of how much you wish to sacrifice. If you go over your annual cap, the extra will be charged at your marginal rate.