• Workplace giving and salary sacrifice arrangements

    There are two formal ways employers can collect money for you:

    • Workplace giving programs
    • Salary sacrifice arrangements

    It is important you understand the difference between the two types of arrangements.

    Workplace giving

    Salary sacrifice arrangements

    Workplace giving is a simple way for employees to regularly donate to DGRs. People technically receive the same salary from the company, but donate a portion of it every pay to their nominated DGR.

    Salary sacrificing is when an employee agrees to have a portion of their salary donated to a DGR in return for the employer providing them with benefits of a similar value (like reducing their salary by $15,000 but receiving a work car).

    The employer forwards the employee's donations to the DGR. The employee is still making the donation to the DGR.

    The employer pays the employee a reduced salary and makes a donation to the DGR.

    The employee claims a deduction for their donation to the DGR in their own tax return.

    The employer claims a deduction for making the donation in their tax return. The employee is not entitled to claim a tax deduction because it is the employer who is making the donation to the DGR.

    The amount of the employee's gross salary remains the same.

     

    In most cases, the donation amount is a fixed amount that the employer deducts from the employee's pay each pay day.

     

    The employer chooses to either:

    • reduce the amount of tax deducted from the employee's pay each pay period to account for the donation. (The employee still claims a tax deduction in their tax return.)
    • not to reduce the amount of tax withheld from the employee each pay period. (The employee claims a tax deduction for the amount donated at the end of the financial year.)
     

    The employee's gross salary is reduced by the salary sacrificed amount and the employee pays income tax on the reduced salary.

     

    The amount of tax that the employee pays is reduced, but only because they now have a reduced salary.

    See also:

    Last modified: 25 Jul 2017QC 33666