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  • Tax treatment of benefits

    There is no restriction on the types of benefits that can be included in a salary sacrifice arrangement. Benefits are generally treated as fringe benefits, exempt benefits, or employer super contributions.

    Fringe benefits

    Common fringe benefits include:

    • cars
    • property (including goods and shares or bonds)
    • expense payments (such as payment of loan repayments, school fees, child care costs and home phone costs).

    Exempt benefits

    Some benefits are exempt from FBT, including the following work-related items commonly provided in salary sacrifice arrangements:

    • a portable electronic device
    • computer software
    • protective clothing
    • a briefcase
    • a tool of trade.

    The work-related items exemption is limited to:

    • items primarily for work-related use
    • one item per FBT year for those that have a substantially identical function, unless it is a replacement item. The exception to this is that small businesses can provide employees with more than one work-related portable electronic device in an FBT year, even if the devices have substantially identical functions.

    From 1 April 2021, the turnover for determining whether an entity is a small business entity increases from less than $10 million to less than $50 million for benefits provided on or after that date.

    See also:


    Salary-sacrificed super contributions under an effective salary sacrifice arrangement are considered to be employer contributions. These are not fringe benefits when paid for an employee to a complying super fund.

    From 1 January 2020, salary sacrificed contributions don't:

    • reduce the ordinary time earnings that the employer is required to calculate on their employee's super entitlement
    • count towards the amount of super guarantee contributions that an employer is required to make in order for them to avoid the super guarantee charge.

    However, super contributions made for the benefit of an associate, such as the employee's spouse, are treated as a fringe benefit. Similarly, contributions paid to a non-complying super fund are a fringe benefit.

    Assessable income

    An employee only pays income tax on their reduced salary, but they receive the reduced salary plus the benefits. They can make employee contributions out of their after-tax income. These can count towards the cost of the benefits and reduce any reportable fringe benefits amount.

    Under an effective arrangement, the employee's income tax liability should be less than it would have been without an arrangement. However, before entering into a salary sacrifice arrangement they should consider the associated costs. This includes the amount to be sacrificed and any surcharges or obligations from having the benefits reported on their income statement in myGov or payment summary.

    Last modified: 10 Feb 2021QC 58425