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  • Implications for employees

    Employees need to be aware of how entering into a salary sacrifice arrangement affects them:

    • You pay income tax on the reduced salary or wages.
    • Your employer may be liable to pay fringe benefits tax (FBT) on the non-cash benefits you receive.
    • Your employer may be required to report certain benefits through Single Touch Payroll or on your payment summary.
    • Salary sacrificed superannuation contributions are treated as contributions from your employer and taxed in the superannuation fund.

    On this page:

    See also:

    Super guarantee

    A salary sacrificed contribution is counted as part of the contributions made by your employer. To ensure you receive the minimum super guarantee amount from your employer over and above any salary sacrifice you make, you will need to have an agreement in place to that effect. This must specify that your employer continues to pay the minimum 9.5% super guarantee amount, without including your extra contributions.

    Without this, if an employee chose to salary sacrifice 5% of their salary into their super, the employer would only have to contribute another 4.5% to meet the 9.5% super guarantee requirement. Similarly, if the employee chose to salary sacrifice 9.5% or more into their super, the employer would not have to make any additional contributions.

    Where contributions are paid to a complying super fund, your earnings base may be reduced unless the salary sacrifice arrangement states otherwise. Your earnings base is the amount on which super contributions made by your employer are calculated.

    Salary sacrificed super contributions are taxed in the super fund under tax laws dealing specifically with this subject. It is advisable that you and your employer clearly understand and agree on all the terms of any salary sacrifice arrangement.

    Salary sacrificing a deductible expense

    If your employer pays for an expense, as part of your salary package, for which you would normally get a tax deduction, they won't have to pay FBT on the expense. This is known as the ‘otherwise deductible rule’. If this occurs you will not be able to claim an income tax deduction for this expense in your personal income tax return. This is because the ‘deductible element’ of the expense has been taken into account when your employer calculates the taxable value of the benefit provided to you for FBT purposes.

    Example: Employer-paid expense

    An employer reimburses an employee for work related calls on the employee's mobile phone. The employee works out that $176 of their calls are work-related, keeps the appropriate records and gives their employer an employee declaration in relation to the expense.

    The employer does not pay FBT on the $176 and the employee can't claim an income tax deduction for these calls..

    End of example

    Fringe benefits tax

    If there is any FBT payable on the benefits you received, your employer is liable to pay that tax. Your salary may be reduced by the amount of FBT paid by your employer as part of your salary sacrifice agreement.

    Certain employers, such as public benevolent institutions, health promotion charities and public hospitals, are not liable to pay FBT unless the amount of benefits provided to an individual employee exceeds the relevant capping threshold (see Fringe benefits tax – rates and thresholds).

    Reportable fringe benefits

    If the total taxable value of certain fringe benefits received by you in an FBT year (1 April to 31 March) exceeds $2,000, the grossed-up taxable value of those benefits will be recorded on your payment summary or income statement in myGov for the corresponding income year (1 July to 30 June). Some fringe benefits, called excluded fringe benefits, don’t have to be reported on your payment summary or income statement, although your employer still has to pay FBT on these.

    Grossing up reflects the gross salary that you would have to earn to purchase the benefit from after-tax dollars. For payment summary and income statement reporting purposes, this is calculated as multiplying the taxable value of the benefit by the lower gross-up rate. The lower gross-up rate is 1.8868 for the year ended 31 March 2020,  but it may change in subsequent years (see Fringe benefits tax – rates and thresholds).

    The value of fringe benefits reported on your payment summary or income statement is known as your reportable fringe benefits amount. You will need to show this amount (or the total of the reportable fringe benefits amounts if you receive more than one payment summary during the year) on your tax return.

    While this amount is shown on your payment summary or income statement it won't be included in your assessable (or taxable) income or affect the amount of basic Medicare levy payable. However, the total will be used to calculate:

    • the Medicare levy surcharge
    • the Division 293 tax for superannuation contributions
    • the super co-contribution
    • certain tax offsets
    • the private health insurance rebate
    • Higher Education Loan Program (HELP), Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL), ABSTUDY Student Start-up Loan (ABSTUDY SSL) or Trade Support Loan (TSL) repayments
    • child support obligations
    • entitlement to certain income-tested government benefits.
    Last modified: 29 Mar 2019QC 58426