“Salary packaging” or “salary sacrificing” involves an arrangement between an Employer and an Employee whereby the employee contractually agrees to forego (sacrifice) part of their future entitlements to salary, in return for Employer providing certain non-cash benefits.
Benefits received in lieu of cash salary are not assessable under the PAYG system and are taxed in accordance with the Fringe Benefits Tax (FBT) Act.
A number of benefits are either exempt from FBT or are treated concessionally for FBT purposes and may provide the employee with a tax advantage by taking the benefit rather than salary. The level of benefit is dependent upon the employee’s marginal tax rate.
Benefits can be separated into four distinct categories;
- Concessionally Taxed Benefits,
- FBT Exempt,
- Otherwise Deductible Benefits and
- Fully Taxed Benefits.