Is Salary Packaging Dead?

Is Salary Packaging dead?

An employment relationship exists where a person (the employee) performs work or services under certain conditions (usually governed by an employment agreement) in return for remuneration from another entity (the employer).

The remuneration is generally in the form of salary, wages and superannuation.

If the employee and employer agree, this remuneration may be negotiated to be received by the employee in different forms.  This is the essence of salary packaging.

The potential exists to reduce the overall tax liability that the remuneration would ordinarily be subject to, by the employee receiving the remuneration via concessionally taxed benefits (in lieu of salary and wages).

To be effective a salary package/sacrifice arrangement must be in place before the remuneration is earned.  For example an employee may be entitled to a bonus upon meeting certain pre-determined goals or targets.  If the employee wishes to receive this bonus in a different form (not as ordinary salary and wages) then the employee and employer must enter into a salary package/sacrifice arrangement before the work has been carried out that subsequently leads to the derivation of the bonus.  It is therefore recommended that salary packaging/sacrifice arrangements be negotiated and agreed upon by the employer and employee at the beginning of each financial year.

So what benefits can be packaged in lieu of normal salary and wages?


One effective strategy is to utilise superannuation (via a salary sacrifice arrangement) whereby the employee sacrifices remuneration (salary and wages) directly to superannuation.  The benefits of such a strategy is that 15% tax (in most situations) is payable on this income, rather than the employee’s marginal tax rate (which could be significantly higher than 15%).  The highest marginal tax rate is currently 49%.   The downside is that money in superannuation is ‘locked up’ and the employee is unable to access these funds until they meet a condition of release as determined by superannuation legislation.  A condition of release is automatic at the age of 65, however there are circumstances where superannuation monies can be released prior to the age of 65.  If you wish to discuss the superannuation rules, please contact our office to discuss further.

Additionally only a certain amount can be contributed to superannuation each financial year without breaching the contribution cap and being subject to additional tax.  The contribution cap is currently $30,000 per annum ($35,000 per annum if the employee is aged 50 or more).  We highly recommend that all employees monitor the level of contributions to their superannuation funds each financial year to ensure that the relevant threshold is not breached.

Motor Vehicle

Another strategy that can provide benefits (in some cases) is the provision of a car by the employer to the employee.  The specific arrangements can be negotiated between the employer and employee however the tax effectiveness will depend upon the unique circumstances agreed upon, as well the cost value of the car provided.  If you wish to discuss this further please contact our office.

Exempt Benefits

Additionally some benefits are provided concessional or exempt status and therefore will provide benefits for the employee if received in this form (in comparison to normal salary and wages).  These benefits will not form part of the employees taxable income and therefore will not be subject to tax.  There are several remote area concessions as follows:

  • Housing assistance – rent subsidies etc.
  • Remote area housing – provision of a unit of accommodation
  • Reimbursement of electricity and fuel in remote locations
  • Remote Area Holiday Transport

The above costs could be negotiated to be paid/reimbursed by your employer (in lieu of normal salary and wages) with concessional tax treatment.

Some other costs that can be packaged (in lieu of normal salary and wages) that will also obtain concessional/exempt tax treatment are as follows:

  • Relocation costs
  • 1 portable electronic device per year per employee that is used predominately (at least 50%) for work purposes (iPhones, iPads etc).  The recent Federal Budget has proposed to lift the ‘1 device per year’ restriction commencing 1 April 2016.
  • Other costs that are deemed ‘otherwise deductible’ to the employee.   Despite the fact that the employee would have been eligible to claim these as tax deductions, there may be a benefits in packaging these benefits due to the ability of the employer to claim the GST on the associated expense.

FBT Exempt Employers

Certain employers are exempt from paying fringe benefits tax.  Some examples of these employers are as follows:

  • Public benevolent institutions
  • Public and non-profit hospitals
  • Health promotion charities
  • Public Ambulance Services

Employees of these employers should consider packaging their remuneration (to pay personal expenses or otherwise) to take advantage of the fringe benefits tax concessions that apply.  Significant tax benefits can be obtained by salary packaging for employees in these situations.

FBT Rebatable Employers

Certain employers are subject to a fringe benefits tax rebate.  Some examples of these employers are as follows:

  • Endorsed charitable institutions
  • Certain religious and scientific institutions
  • Private not-for-profit schools and private not-for-profit universities
  • Trade Unions
  • Non profit organisations established for the purpose of encouraging/promoting music, arts, science, sport, aviation, tourism, agriculture, horticulture, and manufacturing or industrial resources

Employees of these employers should consider packaging their remuneration (to pay personal expenses or otherwise) to take advantage of the fringe benefits tax concessions that apply.  Significant tax benefits can be obtained by salary packaging for employees in these situations.

If you wish to discuss salary packaging further please contact our office on 07 5474 0711.