So I've been hearing people talking about salary sacrifice and from what I've heard, it can be good to pay off bills or car expenses. I've got a car and need to pay it off as well so it may be a benefit for me.
What I want to know is what is it and the pros and cons to sacrificing my salary. Because the word "sacrifice" sounds bad to me.
I'm not too good with understanding finance so please be as easy as you can. Thanks
someone can correct me, but I don't think it will help you with your existing car. car salary sacrificing has to be done through a novated lease.
some workers in the public health system can get a credit card whereby purchases on the card are salary sacrificed. not sure if youre in this category. also, rules may have changed, im not sure.
i've heard some places will buy your existing car and lease it back to you.
The leasing company will buy your existing car from you, and you in turn lease it back from them. It will need to be less than 8 years old by the end of the lease period though. From what they pay you for it, they will first pay out whatever is owing on it to the lender, and you will receive the balance.
OP, whether it's worth salary sacrificing will depend greatly on your income. If your salary is fairly low, not so much so, but once you go into the higher tax brackets the savings can be significant.
Our vehicle is currently in the 7th year of leasing (had it for five then took it on for a further 2 years. We are out of pocket to the tune of $60 per week and that includes fuel, insurance and maintenance for 30 000km per year.
As is already mentioned, WHAT you can salary sacrifice will vary between employers. The only thing claimable with hubby's current employer is a vehicle. With his previous employer they could claim vehicle, laptop, credit card, even the mortgage.
There are a couple of things that are commonly called salary sacrifice. The first is paying more pre-tax super. It doesn't look like you mean this.
The second is legally claiming some expenses as benefits. If your employer runs such a scheme, and they are rare since most FBs were scaled back, then they often provide an advisor or a webpage to explain exactly how it works, and a calculator to show your financial situation with and without SS, exactly how much you benefit, if at all. You need to understand how it works despite not liking finance, otherwise you may be surprised when your payslip shows less money. And also what happens if you leave the job or other events.
It's a perk for some jobs and can be generous when it does exist. E.g. I know of one example, the NSW Health Service, where the workers were able to claim utility bills dating back years. But only once of course. The benefit for NSWHS was that they split the saving with the worker resulting in more funds for the service.
There's nothing wrong with salary sacrifice — it can work out quite well.
But it's not a question of 'what should you salary sacrifice?' — it's a question of 'what will your employer allow you to salary sacrifice'?
Some employers will let you do lots of stuff, some not at all — because it costs your employer money (in the form of Fringe Benefits Tax) when you sign up for a salary sacrifice.
That said, not-for-profit companies (and some semi-related organizations, like emergency services) have exemptions on Fringe Benefit Tax, so it costs those employers virtually nothing and as a result they tend to allow their employees salary sacrifice lots of stuff.
My wife turns 55 this year and as she works part time, she can start accessing her super to top up her income as if she worked full time - it's called the Transition To Retirement (TTR). So we're going to salary sacrifice her income that she's paying 32 cents in the dollar into super so that only attracts 15 cents tax and then pulling it out of super, tax free.
Sounds like a dream! Free money!
Like everything the government offers there are multiple catches: total limit of $25k concessions per year including super guarantee (9.25%) and salary sacrifice - possibly increasing to 30k.
If your wife is not yet 60 the withdrawals won't be tax free - super is tax free at 60, although she'll probably get a 15% tax offset if it's from the taxed component.
There's also adverse effects on family tax payments if you receive those.
Obviously I'm not a financial advisor and all opinions are general.
As other posters have mentioned, hurdle #1 is will your employer let you enter a salary sacrifice arrangement. It is extra compliance work for their accounting team so generally speaking it's not an option they give out to everyone.
Point 2 - if you aren't good at finance this is dangerous territory. It's very hard to say whether you will be better off as there are a lot if variables (whether you are in private / not for profit, what you want to salary sacrifice for, your income etc etc). Best to get some professional advice.
Point 3 - Your employer is not obliged to pay the 9.25% super on salary sacrificed earnings - get something in writing from them guaranteeing they will pay super on the sacrificed amount.
The above being said, assuming you're private sector I'd forget about bills quite quickly unless they were 100% work related (employer could reimburse you without paying FBT).
Car is a more interesting discussion. As another poster said, it has to be the company providing you with the car so selling it to financing company and getting novated lease is the way to go. I'm assuming your use is 100% private so your employer will value the car benefit using 'statutory formula' which has been made a lot less tax effective for private purposes over the past several years (used to be higher kms= higher assumed proportion of business use, therefore lower taxable value and lower employee contribution required).
The below is a good illustrative example - note the guy in this example is worse off salary sacrificing because the taxable value is too high and his marginal tax rate is too low, keeping in mind employee contributions to running costs to make your employer's FBT liability zero have to come out from after tax dollars.
http://www.ato.gov.au/General/Fringe-benefits-tax/In-detail/…
Disclaimer: above post is for general reading / entertainment purposes ONLY.
Great points. Always do A LOT of research or get good financial advice.
A friend has just started working for a school. He was asking about salary sacrificing and he was looking into getting chairs, desks, computers etc…
I suggested it might be easier if he keeps things simple and salary sacrifice $16,050 and use it to pay his mortgage as doing this is FBT exempt/reduced for schools and similar public service institutions (hospital staff, teachers, police etc).
http://www.ato.gov.au/Non-profit/Fringe-benefits-tax/In-deta…
From my experience, it's not really worth the hassle. They keep changing FBT rules etc with the aim of making something that once have value have no value in the future. My company revoked their policy on salary sacrificing for laptop computers, I managed to be the last person to sneak one through. I'd just killed my laptop (wife tripped over it) and got an insurance payout to repair it for $1500. Went to JB HiFi and spotted a nice Qosmio for $2700 and talked them down to $2200…took invoice to work and I could nominate whether to have it covered under one pay or multiple (up to 12 months)…I went for the single paycheck…the GST came off and it was down to $2000 of pre-tax salary which then reduced to be $1200 less going into my bank account that month…so I was now $300 ahead on my insurance claim, so I bought a new LCD screen from screen country in Canada for $150 and fixed the damaged laptop myself which is still going strong after 7 years!
My advice…don't salary sacrifice…just talk your employer into buying it for you. Maybe look at various forums on topics covering salary sacrificing for lease cars - It's not as great as it used to be.