Salary packaging (also known as salary sacrifice) is an arrangement between you and your employer where you pay for some items or services straight from your pre-tax salary. You can salary package computers, cars, childcare and super, to name a few. This can reduce your taxable income and put more money in your pocket.
Your employer then has to pay fringe benefits tax (FBT) on the benefits provided to you. Some of these benefits will be listed on your end of year payment summary and are used to assess your Medicare levy surcharge, tax offsets, child support payments and other government benefits.
You must enter into a salary packaging arrangement before you earn the income.
Who can salary package?
You can salary package if your employer is willing to offer benefits. Most employers will offer salary sacrifice into super to all employees, but may restrict who can package other benefits. Ask your employer what they offer. Salary packaging is usually more effective for people on mid to high incomes.
There is no restriction on what can be packaged but the benefits fall into three categories: fringe benefits, exempt benefits and super.