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Salary Packaging

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Newbie

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I am interested to know the answer to 2 questions.
Q1. Does the tax office collects less tax as a result of an employee and an employer agreeing to salary package a car? I am not referring to salary sacrificing into superannuation. ASIC gives an example of 'Jacqui' who is on $100,000 per year buying a car worth $20,000. Forget Medicare. If Jacqui was paying tax on $100,000 she would pay about $24,631 in tax. If she buys a car and pays tax on $80,000 she will pay only about $17,546 in tax. Does this mean she pays about $7,085 less income tax? And does this mean the ATO misses out on $7,085?

Q2. From what I can make out from the ASIC example (forget the $5000 she pays into her super fund by way of salary sacrifice) on $100,000 pa her employer will pay $9,500 into her super fund less 15% = $8,075 into super net for Jacqui idf there is no salary packaging. But if Jacqui is salary packaging her employer will only pay super on $80,000 ie. $7,600 less 15% = about $6,460 net into her super fund ie. over the year about $1,615 less is paid into her super fund?  Is this rougly correct?

Refer: https://www.moneysmart.gov.au/managing-your-money/income-tax/salary-packaging

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Devotee

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Hi @SalarySac,

 

Thanks for your questions! Salary sacrifice is an arrangement between an employer and an employee where

  • the employee agrees to forgo part of their future entitlement to salary or wages and
  • the employer provides them with benefits of a similar value.

In some circumstances, an employer may be considered to be providing a 'fringe benefit' to an employee in a salary sacrifice arrangement. By entering into a salary sacrifice arrangement:

  • You pay income tax on reduced salary or wages
  • Your employer may need to pay fringe benefits tax (FBT) on the benefits they provide and
  • Your employer may be required to report certain benefits on your payment summary.

While you personally may be paying less tax, your employer may need to pay the fringe benefits tax on your salary sacrifice for you.

 

In some circumstances, having less tax withheld due to reduced salary and wages can affect:

  • your eligibility to certain tax offsets,
  • any child support obligations you may have and
  • may affect how much you have to pay towards compulsory higher education loan program (HELP) repayments and the Medicare Levy Surcharge.

Additionally, salary sacrificed super contributions are classified as employer super contributions, rather than employee contributions. This will reduce the amount of superannuation your employer needs to pay to meet their superannuation obligations -  if your salary-sacrificed super contribution is more than the minimum super guarantee amount of 9.5%, your employer does not need to pay any additional amounts to meet their super guarantee obligations.

 

Hope that helps!

 

 

1 REPLY 1
Highlighted

Most helpful response

Devotee

Replies 0

Hi @SalarySac,

 

Thanks for your questions! Salary sacrifice is an arrangement between an employer and an employee where

  • the employee agrees to forgo part of their future entitlement to salary or wages and
  • the employer provides them with benefits of a similar value.

In some circumstances, an employer may be considered to be providing a 'fringe benefit' to an employee in a salary sacrifice arrangement. By entering into a salary sacrifice arrangement:

  • You pay income tax on reduced salary or wages
  • Your employer may need to pay fringe benefits tax (FBT) on the benefits they provide and
  • Your employer may be required to report certain benefits on your payment summary.

While you personally may be paying less tax, your employer may need to pay the fringe benefits tax on your salary sacrifice for you.

 

In some circumstances, having less tax withheld due to reduced salary and wages can affect:

  • your eligibility to certain tax offsets,
  • any child support obligations you may have and
  • may affect how much you have to pay towards compulsory higher education loan program (HELP) repayments and the Medicare Levy Surcharge.

Additionally, salary sacrificed super contributions are classified as employer super contributions, rather than employee contributions. This will reduce the amount of superannuation your employer needs to pay to meet their superannuation obligations -  if your salary-sacrificed super contribution is more than the minimum super guarantee amount of 9.5%, your employer does not need to pay any additional amounts to meet their super guarantee obligations.

 

Hope that helps!