What is a salary sacrifice arrangement?

A salary sacrifice arrangement is an arrangement between an employer and an employee, whereby the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value. A salary sacrifice arrangement is commonly referred to as salary packaging or total remuneration packaging.

Under an effective arrangement:

  • the employee pays income tax on the reduced salary or wages
  • you, as 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) and are taxed in the superannuation fund under tax laws dealing specifically with this subject.
    Last modified: 18 Jan 2012QC 17808