Salary packaging is an Australian Taxation Office approved system of restructuring employees’ income in a way that allows them to pay for approved items using a portion of their salary that has not been taxed. According to the ATO, an employee on for example who gets a $35,000 car with the employer paying the maintenance as part of a salary package is already ahead. They will sacrifice $14,205 if no employee contributions are made, or $9109 if employee contributions of $5,950 are made. That’s a small sacrifice for a new car. And for the printer, it locks the employee into the company.

Under the present rules, there are no restrictions on what can be packaged. But it seems that the benefits of salary sacrifice or salary packaging fall into three categories:

Fringe benefits

• Cars
• Health insurance
• Loans (usually for a car)
• School fees
• Childcare fees

Exempt benefits

• Portable electronic devices
• Computer software
• Protective clothing
• Tools of the trade
• Briefcases

Superannuation

Most employers will offer salary sacrifice into super to all employees. However, they might restrict who can package other benefits. The salary sacrificed contributions increase the super fund account balance which means they are accumulating more super to fund their retirement. The great advantage with salary packaging super is that the contribution to super is taxed at 15 percent. For someone paying tax at the higher income tax rates at 46.5 per cent, that is a big saving, an extra $300 on evefry $1000 earned. It is also an encouraging way to get people to save for retirement. Also, the interest earned in the super fund is taxed at 15 per cent, while any interest earned outside the super fund is taxed at the top marginal tax rate. That makes it a very attractive option. The compulsory super contributions made by the employer (9 per cent of pay) may be reduced if the employee salary sacrifices into super. This varies with individual employment agreements.

And of course, it is good for the company too. Because the salary sacrifice contributions are provided by the employer, the employer can usually claims a tax deduction on the amount of salary sacrificed contributions they contribute to the super fund on the employee’s behalf, while creating a more loyal and dedicated workforce.

The most common method used by an employee to package a car is a novated lease agreement. It also makes sense in an age when most employees drive cars. Salary packaging bureaus these days also offer discounted car buying services, discounted rates of finance and discounted fuel cards to assist in the management of packaging.

A salary sacrifice strategy comes at no cost to the employer because an outside administrator handles all the payments, calculations of Fringe Benefits Tax (FBT), Input Tax Credits (ITCs) or GST, reporting and compliance with Taxation requirements.

The company’s payroll team load the deductions into each employee’s salary structure.

Every payday, the money is transferred automatically into the joint trust account of the company and the administrator.

All of this demonstrates to the employee their importance to the organisation. It boosts their sense of status and self-worth, and improves productivity by focusing them on the company. At no real cost to the print business.

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at editorial@sprinter.com.au.  

Sign up to the Sprinter newsletter