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

Relying on our information - our commitment to you

We are committed to providing you with advice and guidance you can rely on, so we make every effort to ensure that what we give you is correct.

If you follow our advice or guidance and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the advice and guidance on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our advice and guidance does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Copyright

This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved.

Requests for further authorisation should be directed to the Commonwealth Copyright Administration, Copyright Law Branch, Attorney-General’s Department, Robert Garran Offices, National Circuit, BARTON ACT 2600 or posted at http://www.ag.gov.au/cca.