Show download pdf controls
  • Salary sacrifice arrangements

    Under a salary sacrifice arrangement between the employer and their employee, the employee agrees to forgo part of their future entitlement (such as salary or wages) in return for benefits of a similar value. Salary sacrificing is sometimes called salary packaging or total remuneration packaging.

    Under an effective salary sacrifice arrangement:

    • the employee pays income tax on the reduced salary or wages
    • the employer may be liable to pay fringe benefits tax (FBT) on the benefits provided in lieu of salary
    • if the arrangement involves receiving super contributions in lieu of salary or wages, the contributions are classified as employer super contributions (rather than employee contributions) and are taxed in the super fund
    • from 1 January 2020, salary sacrificed contributions don't:
      • reduce the ordinary time earnings that the employer is required to calculate their employee's super entitlement on
      • count towards the amount of super guarantee contributions that the employer is required to make in order for them to avoid the super guarantee charge.

    If the arrangement doesn't meet the requirements of an effective salary sacrifice arrangement, the benefits are taxed as assessable (or taxable) income of the employee at the time they are provided.

    Note: While we provide guidance on how FBT is calculated, we do not give financial advice. Employees should seek financial advice before entering into a salary sacrifice arrangement.

    Find out about:

    See also:

    • Fringe benefits tax – a guide for employers
    • Taxation Determination TD 2013/20 Fringe benefits tax: when an employer reimburses an amount of expenditure incurred by an employee to a third party, under a salary sacrifice (or similar) arrangement with that employee where that expenditure is notionally subject to Division 35 of the Income Tax Assessment Act 1997, is the amount included under subsection 35-10(2E) increased when applying the 'otherwise deductible rule' in section 24 of the Fringe Benefits Tax Assessment Act 1986?
    • Taxation Ruling TR 2013/6 Fringe benefits tax: otherwise deductible rules and Division 35 of the Income Tax Assessment Act 1997
    • Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements

    If you need more information you can:

    • phone 13 28 66
    • speak to your adviser.
    Last modified: 18 Aug 2020QC 43872