What is Salary Sacrifice and How Can It Save Money - Introvert Whisperer

Introvert Whisperer / What is Salary Sacrifice and How Can It Save Money - Introvert Whisperer What is Salary Sacrifice and How Can It Save Money? Salary sacrificing is a common term you might have come across during your employment. Also known as salary packaging, it’s a popular method of saving money by making purchases from your salary before it’s taxed. Sacrificing your salary isn’t a new concept for employees, but many people are misguided in believing it’s too hard or not worth organising. While there are many myths about salary sacrifice, lowering your taxes and arranging clever payment plans are just some of the benefits employees can profit from. What is Salary Sacrifice? Salary sacrifice is an arrangement between you and your employer, where you can reduce your salary in exchange for the same value in a variety of purchases, known as ‘benefits’. Employers may offer the option of a salary sacrifice to attract new employees or as an incentive to increase productivity. The advantage of salary sacrificing is that it lets you reduce your income before it’s assessed for taxation, allowing you to purchase goods or services that you would normally buy, while reducing your tax bill. Products like cars and computers, as well as services such as childcare or voluntary superannuation contributions can all be salary sacrificed, although they each come with different conditions. How Does It Work? When organising a salary sacrifice with your employer, it’s best to draft a written agreement as it will clearly establish the terms and conditions for both parties. Once agreed upon, your employer will deduct a nominated portion of your income before each pay cycle, which will then be spent on the arranged benefits. The remaining amount of your pay will then be taxed and deposited into your account as usual. Salary sacrificing must be arranged before you begin earning your salary for that payment period and cannot be retrospective. Salary sacrifice normally benefits the employee more than the employer, as the employer will be charged with administrative and other fees. In Australia, your employer must pay Fringe Benefit Tax (FBT) on certain types of benefits. The value of these benefits will be recorded and will contribute to assessing your Medicare levy surcharge, tax offsets and eligibility for Government benefits. What Can You Salary Sacrifice? Depending on your employer, almost any product, service or purchase can be paid for with a salary sacrifice. Benefits will fall into one of three main categories. Fringe Benefits: This category is for benefits that will appear on your tax summary and which your employer must pay FBT on. It is the broadest category and includes options such as: Salary sacrifice cars Car loans Health Insurance School fees Childcare fees Personal expenses Benefits that are a part of this category, but will not appear on your end of year payment summary are known as ‘non-reportable fringe benefits’ and can include entertainment and car parking. Exempt Benefits: These benefits are associated with providing a useful function to your work. Your employer will not have to pay FBT on these benefits and they will not be recorded on your yearly tax summary. They can include: Computer software Tools of the trade Briefcases Portable electronic devices, such as laptops or phones Protective clothing Superannuation: Salary sacrificed employee contributions to your superannuation will be taxed by your super fund at 15%, which can be much lower than your normal tax rate. Sacrificing into super can also benefit employers, as they do not have to pay FBT on this benefit. Employers are more likely to offer the option of salary sacrificing into superannuation than other benefits, as it is a relatively simple process with fewer fees. Make sure to check with your employer about what benefits they are willing to offer. Salary Sacrificing Your Car Salary sacrificing is one of the best ways to finance larger and delayed purchases such as a car. In what’s known as a novated lease, you can arrange to lease a car of your choice from a car company and have your employer manage payments from your pre-tax salary. A novated lease package on a car can also include running costs such as registration, fuel, maintenance and insurance. Not only does this make owning a new car much simpler and more affordable, deductions for the lease all take place before the final calculation of your tax, allowing you to save money at tax time with a lower salary. Contrary to popular belief, salary sacrificing is easy to set up and can be a great way for employees at almost any income level to save money. Consider talking to your employer today about the possibility of a salary sacrifice. Author’s Bio: This article was written by Daniel Defendi, who writes for Easifleet in Perth. You can catch him on Google+ to discuss this piece. Go to top Let me emphasize that Self-Promotion doesn’t have to be obnoxious to be effective.  But, if you don’t Self-Promote you, who will? If you ever want to get ahead, you have to learn how to Self-Promote. I want to help you accelerate your career by connecting you with your Free Instant Access to my video that shows you simple, yet effective ways to Self-Promote. Start watching now by clicking here! Brought to you by Dorothy Tannahill-Moran â€" dedicated to unleashing your professional potential. Introvert Whisperer