Salary Sacrificing - Is It Right For Me?

Salary Sacrifice - Is It Right For Me?

Salary sacrificing is an arrangement where you agree with your employer to receive less pre tax salary in return for them providing you with benefits of a similar value. It's a way to pay for certain items out of your income before tax is calculated. This reduces your taxable income, and lowers the amount of tax you pay. However, you should always aim to understand the ins and outs before deciding if it's the right choice for you. There are many options for salary sacrifice, and you should check with your employer what they offer.

Superannuation: A lot of Aussies will salary sacrifice to boost their super. By contributing more to your super from your pre-tax salary, you can grow your retirement savings faster while also potentially reducing your current taxable income. The Australian government sets limits on how much you can contribute to super each year at a concessional tax rate. For more details, you can visit the Australian Taxation Office (ATO) website: https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super

Comparing net disposable income for 3 salary sacrifice scenarios. Source: https://www.ato.gov.au/individuals-and-families/jobs-and-employment-types/working-as-an-employee/salary-sacrificing-for-employees

Vehicle: Another popular option, especially if your employer offers it, is a novated lease for a car, especially electric cars. This involves your employer paying for your car lease and running costs out of your pre-tax salary. The potential benefit is a reduction in your taxable income, which could lead to tax savings. However, it's vital to consider whether you would typically spend that amount on a car. If a new or expensive vehicle isn't normally in your budget, the tax benefits might not outweigh the costs. Additionally, Fringe Benefits Tax (FBT) can apply, although electric vehicles under the luxury threshold may be exempt. For more details on electric car discount and fringe benefits, see here: https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/fringe-benefits-tax/types-of-fringe-benefits/fbt-on-cars-other-vehicles-parking-and-tolls/electric-cars-exemption

For example, my housemate shared their experience with a novated lease on an electric vehicle. By salary sacrificing the lease payments and running costs through their employer, they found they saved thousands of dollars per year. These savings came from a combination of reduced income tax, and the leasing company covering maintenance and servicing costs. They noted that their personal circumstances and the specific terms of their lease contributed to the significant savings. It is important to note that this is just one example and individual results may vary.

Other Items: Some employers offer salary sacrifice arrangements for laptops, mobile phones, or even childcare fees. The idea is the same: you pay for these expenses out of your pre-tax income, potentially lowering your overall tax liability. However, each type of salary sacrifice has its own rules and regulations. It's important to check the ATO website for details on how these arrangements work and what tax implications they may have. You can find general information on salary sacrifice for employees here: https://www.ato.gov.au/individuals-and-families/jobs-and-employment-types/working-as-an-employee/salary-sacrificing-for-employees

The potential tax savings from salary sacrificing can be attractive. By reducing your taxable income, you might fall into a lower tax bracket, pay less Medicare levy, or reduce your compulsory HECS-HELP repayments. However, it's essential to remember that salary sacrificing also means less take home pay each pay period. You need to carefully assess your budget and ensure you can still comfortably meet your living expenses before entering into any arrangement.

Salary sacrificing isn't always a good option. Whether it's the right choice for you depends on a range of factors, including your income, your employer's policies, the specific benefits being offered, and your personal financial goals. It is always worth running the numbers to see if the benefits outweigh the costs.

Before making any decisions about salary sacrificing, it's strongly recommended to do your own research and, if necessary, seek independent financial advice. The information provided here is general in nature and should not be considered personal financial advice. You can find more detailed information on the ATO website, or consult with a qualified financial advisor or tax professional to discuss your specific circumstances. They can help you determine if salary sacrificing is a suitable strategy for you and ensure you understand all the potential benefits and drawbacks.

Disclaimer: This article provides general information about salary sacrificing in Australia and is not intended as financial or tax advice. You should consult with a qualified professional for advice tailored to your individual circumstances. Always refer to the official Australian Taxation Office (ATO) website for the most up-to-date and accurate information.

Aussies! What's Your Take Home Pay?

Quickly figure out your take-home pay after tax in Australia. Just enter your salary, and this calculator will estimate your net income, tax, super, and HECS repayments for the 2024-2025 financial year.

Salary Calculator

© Copyright 2025 Simple Salary Calculator. All Rights Reserved.
This calculator is for estimation purposes only and should not be considered financial advice. The results provided are based on general assumptions and may not reflect your exact financial situation. For accurate and personalized advice, please consult a qualified financial professional or tax advisor.