What is it?
Salary packaging, also known as salary sacrifice, is an arrangement where an employee agrees to receive part of their salary in the form of benefits or non-cash items rather than as regular income. This arrangement allows employees to pay for specific expenses, such as a car, superannuation contributions, or laptops, with pre-tax income, potentially reducing their taxable income. Salary packaging is commonly offered by Australian employers to enhance employee benefits and support financial well-being.
Types of Packaging can include:
- Superannuation Contributions: Employees can choose to allocate a portion of their pre-tax salary to superannuation, increasing their retirement savings.
- Vehicle Leasing: Through novated leasing, employees can lease a car and pay for it with pre-tax income, which includes running and maintenance costs.
- Electronic Devices: Employees can purchase work-related devices such as laptops or mobile phones through salary packaging.
- Living Expenses (for certain public sector or non-profit employees): Eligible employees can use salary packaging for expenses like mortgage payments, rent, and utility bills under specific tax exemptions.
Why is it important?
- Tax Benefits: Salary packaging allows employees to reduce their taxable income, potentially resulting in significant tax savings.
- Increased Take-Home Pay: By using pre-tax income for certain expenses, employees may experience higher disposable income.
- Enhanced Retirement Savings: Packaging additional superannuation contributions helps employees grow their retirement savings and benefit from compounding interest over time.
- Attraction and Retention Tool: Salary packaging is an attractive benefit for potential hires, particularly for roles in sectors like healthcare and education, making organisations more competitive in the talent market.
- Financial Flexibility: Salary packaging provides employees with options to manage their income effectively, allowing them to meet personal and financial goals more efficiently.
