Navigating Salary Sacrifice: Essential Insights for Employers

At its core, salary sacrificing constitutes a formal pact between an employer and an employee. In this agreement, the employee consents to forego a segment of their salary or wages, redirecting it towards alternative benefits of equivalent value, such as increased super contributions or access to a company vehicle.

Key facets of salary sacrificing include:

• Tax Benefits & Implications: Employees enjoy reduced income tax liabilities on their adjusted salary, while employers may encounter fringe benefits tax (FBT) obligations on the benefits extended.
• Superannuation Contributions: Contributions to superannuation stemming from salary sacrificing are treated as employer contributions and subject to taxation within the super fund rather than being part of the employee’s after-tax income.

Crafting an Effective Salary Sacrifice Arrangement

For a salary sacrifice arrangement to be deemed effective, certain criteria must be met:

• Timely Initiation: The agreement should precede the employee’s work performance.
• Formal Agreement: A documented official agreement between employer and employee is imperative.
• Restrictions on Access: Measures should be in place to ensure that the sacrificed salary remains inaccessible to the employee until allocated for the agreed-upon benefits.

Implications and Considerations for Employers

Employers navigating salary sacrifice arrangements must contend with various implications, including:

• FBT Obligations: The provision of fringe benefits may trigger FBT liabilities for employers.
• Income Tax Considerations: Adjustments to an employee’s assessable income will require careful evaluation.
• Reporting Requirements: Compliance with reporting standards, including Single Touch Payroll and payment summaries, is vital.

Eligible Benefits for Salary Sacrifice

Salary sacrificing offers a wide range of benefits to choose from, including:

• Fringe Benefits: Covering items like vehicles, goods, and shares, which may incur FBT liabilities.
• Exempt Benefits: Certain work-related items, such as electronic devices or protective gear, may be exempt from FBT.
• Superannuation Contributions: Contributions to complying super funds, classified as employer contributions, offer additional financial planning avenues for employees.

Navigating Tax Implications and Resources

Employers seeking further clarity on tax implications and related matters can refer to the following ATO resources:

FBT Guide: Providing comprehensive insights into salary sacrifice implications.

Taxation Ruling TR 2001/10: Offering guidance on income tax, fringe benefits tax, and superannuation guarantee aspects of salary sacrifice arrangements.

Streamlining Reporting Procedures

To ensure regulatory compliance and transparency, employers may be required to report specific fringe benefits through Single Touch Payroll or on employees’ payment summaries.