Salary sacrificing: what is it and how can it work for you?

Salary Sacrificing Poole Advisory


As financial planners, we often have clients ask us about salary sacrificing. What is it? What are the benefits? Should I be doing it? If you’ve ever asked these questions before, you’ve come to the right place.

As experienced financial planners, we know the ins and outs of salary sacrificing. While it’s important to speak with an expert before making any final decisions, this article will help you understand the basic concept of salary sacrificing and whether or not it can work for you.


What is salary sacrificing?

Salary sacrificing is when you make an agreement with your employer to forgo a portion of your pre-tax salary and put it towards goods or services instead. In other words, you “sacrifice” some of your income and use it to buy something you’d normally spend your after-tax pay on. Salary sacrificing is sometimes referred to as salary packaging or total remuneration packaging.

The main benefit of salary sacrificing is that it reduces the amount of tax you pay. That’s because, by opting to salary sacrifice, you effectively lower your taxable income in the eyes of the government.


What sorts of items can you salary sacrifice?

What you can salary sacrifice depends on your employer and the specific arrangements they offer. However, some common items that are salary sacrificed in Australia include:

  •   Additional superannuation contributions: you can choose to salary sacrifice a portion of your income and contribute it to your superannuation fund. This can help boost retirement savings while reducing the amount of income tax paid on those contributions (contributions up to $27,500 are taxed at just 15%, instead of the marginal tax rate).
  •   Vehicles: many employers provide the option to salary sacrifice a motor vehicle. This can include leasing or financing the vehicle and covering associated expenses such as fuel and maintenance.
  •   Portable electronic devices: you may be able to salary sacrifice the cost of a portable electronic device, such as a laptop, tablet or phone, as long as it’s used primarily for work-related purposes (i.e. 51% or more).


Does salary sacrificing affect your Centrelink payments or HELP/HECS debt?

If you have a HELP (Higher Education Loan Program) or HECS (Higher Education Contribution Scheme) debt, salary sacrificed amounts do not count towards the repayment threshold. So, while salary sacrificing may reduce your taxable income, it won’t reduce the income threshold at which you need to start repaying your HELP/HECS debt.

As for Centrelink, salary sacrifice may affect your eligibility for payments, depending on the type of benefits you receive. It’s best to discuss your situation with a financial advisor or contact Centrelink directly to understand how salary sacrifice may impact your payments.


Benefits of salary sacrifice for business owners

If you’re a business owner, you can offer your staff the option of salary sacrificing. While it’s fantastic for your employees, it can also have numerous benefits for your business, such as:

  •   attract talent by demonstrating your commitment to supporting the financial goals of your employees
  •   improve employee retention and morale by offering more flexibility in how their remuneration is structured
  •   save costs by reducing your payroll tax liabilities.



Financial advice is crucial when considering a salary sacrifice arrangement

Salary sacrificing is a complex financial issue that may have unforeseen implications for your personal circumstances. It’s important not to rush into any decisions before seeking expert advice.

This is true whether you’re an employee who wants to use salary sacrifice to boost your retirement savings or an employer who wants to provide a flexible remuneration package for your staff.

At Poole Advisory, we can help you understand the benefits of salary sacrifice and how it can fit into your overall financial strategy.

For employers, we can help you:

  •   evaluate options and design a program that aligns with your business goals (and articulate those as part of our business planning services)
  •   ensure compliance with legal requirements and minimise your risks
  •   communicate and educate employees about the benefits and options of salary packaging.

If you’re an employee, our team can:

  •   assess your financial goals and determine whether you’re a suitable candidate for salary sacrifice
  •   help select the most beneficial items for salary sacrifice
  •   assist with retirement planning and long-term financial security
  •   provide ongoing guidance and adjustments as needed.


Our tailored financial advice helps you achieve your goals

Over the past 20 years, we’ve provided personalised financial advice to families, businesses and high net wealth individuals. Our vast experience has taught us the importance of tailoring our financial advice to the individual, rather than taking a one-size-fits-all approach. This is the exact approach we’d take if you walked through our doors seeking advice about salary sacrificing.

Let’s say, for example, you are a Bowral or Southern Highlands resident who wants to maximise your retirement income. We could give you advice on how to use a salary sacrifice arrangement to make additional contributions to your superannuation.

We could incorporate the salary sacrifice strategy into your overall retirement plan, considering factors such as your desired retirement age, desired income in retirement and risk tolerance. Plus, we could provide projections and scenarios to illustrate how salary sacrifice can accelerate your retirement savings over the long term, while reducing the amount of tax you’re required to pay in the short term. All of this advice would be tailored to your unique circumstances, helping to set you up for a financially secure retirement.

If you’d like more information about salary sacrificing and want tailored advice on how you can use it to achieve your own financial goals, get in touch today or book an appointment with one of our financial planners.


Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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