Kathryn Lee - 29 Jul, 2021
If you’re saving for your first home or wanting to boost your retirement savings, salary sacrificing could help put money back into your pocket.
When it comes to salary sacrificing, it can be overwhelming to think about what you’re missing out on, where to start or if it is the right choice for you. With different rules for different workplaces and occupations, we’ve explained the ins and outs of salary sacrificing to help you decide what’s best for your situation.
Whether you can salary sacrifice and how much depends on your employer. Salary sacrifice arrangements are typically done in a formal contract but can sometimes be made verbally. It is recommended though, you formally agree on any terms so as not have difficulty establishing facts should something go wrong.
This arrangement between an employer and employee must be done before you begin getting paid – but an exception applies to your super. This contract will state your remuneration alongside your salary sacrifice sum. And, if you think up a new expense which could work, you can renegotiate a deal at any time.
Some industries, including public health, not-for-profits and charities, often have added salary packaging extras. If you work in one of these industries be sure to ask about the added incentives and fill out the necessary paperwork to claim the maximum amount – which changes depending on your job.
For employees of public health, benefits allow you to reduce your taxable income by $9,010 per fringe benefits tax and spend it all on general benefits. On top of this, workers also have access to a Meal and Entertainment allowance of $2,549, which can be claimed.
Charity and not-for-profit employees have an even wider range.
The value of the benefits will appear on your payment summary at tax time. You will not need to pay tax or Medicare levy on this amount.
Some common expenses that can be paid for under a salary sacrificing agreements include:
Some things to remember for electronic devices:
While the thought of sacrificing more of your income may hurt, there are attractive advantages to sacrificing money into your super. And, this arrangement can be a good way to reduce tax on your super contributions, for example.
Salary sacrifice contributions are taken from your pre-tax salary, meaning you will only pay 15% tax when they enter the super system – if you earn less than $250,000. If you’re earning over 250K, this becomes 30%.
This is a lower tax rate than most employees pay on their income, which can be as steep as 47%.
If your place of work salary sacrifices, then you need to be certain it’s for you before you opt-in. Factors you’ll need to consider are:
There are many benefits to salary sacrificing. These are as follows:
With benefits come disadvantages. The pitfalls of salary sacrificing are:
ASIC’s MoneySmart and the Australian Taxation Office can be great resources to gain more insight into salary packaging and salary sacrificing for superannuation.
Network: We also suggest talking to someone in your network, whether it be colleagues or family, to gain advice from past experience.
Advice: You can get advice on your specific circumstances from a financial advisor, and sometimes even your employer or super fund.
Salary packaging calculators: These can help give an estimation of potential savings made from the agreement.
Do you want to know more about salary sacrificing your home loan? Contact eChoice to find out if you’re eligible. Our brokers also have access to hundreds of home loan products, so we’ll help find the right mortgage for you.