Salary sacrifice arrangements - Tax basics for non-profit organisations

Note: This document forms part of our publication Tax basics for non-profit organisations. To view the full publication, click here.

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between an employer and an employee, whereby the employee agrees to forego part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar cost (to the employer). The employee is likely to place greater value on the benefit than its cost to the employer.

An effective salary sacrifice arrangement will detail the amount of salary or wages income to be sacrificed, and it must be entered into before the employee becomes entitled to be paid and before any work is performed.

Under an effective arrangement:

• the employee pays income tax on the reduced salary or wages
• the employer may be liable to pay FBT on the fringe benefits provided
• salary-sacrificed superannuation contributions are classified as employer superannuation contributions (not employee contributions). This means they are taxed in the superannuation fund under tax laws dealing specifically with this subject, and
• the employer may be required to report certain benefits on the employees’ payment summary.

For more information refer to Salary sacrifice arrangements for employees (NAT 7424). To obtain this publication, see More information.

Last Modified: Monday, 15 October 2007