Salary sacrificing can be a useful way to structure parts of your pay and benefits. But once fringe benefits tax (FBT) enters the picture, things can become confusing quickly.
Understanding how FBT works, what benefits may be included, and how salary sacrifice arrangements operate can help Australians better understand their employment benefits and tax obligations.
This guide explains the basics of fringe benefits tax in Australia, what salary sacrifice means, and the types of benefits that may be available through employers.
What is salary sacrifice?
Salary sacrifice, sometimes called salary packaging, is an arrangement between an employee and their employer where part of an employee’s future salary is exchanged for non-cash benefits.
Instead of receiving that portion of income as salary or wages, the employer provides a benefit of similar value.
Common examples of salary sacrifice arrangements include:
Additional superannuation contributions
A company car
Mobile phones or laptops
Childcare or other employee benefits
The agreement must be set up before the income is earned. The Australian Taxation Office (ATO) does not allow salary sacrifice arrangements to apply to income that has already been received.
This means salary sacrifice cannot be applied to things such as:
Salary that has already been paid
Leave entitlements that have already accrued
Bonuses already earned
Commissions already received
For clarity and record-keeping, these arrangements are usually documented in writing between the employer and employee.
Example of salary sacrificing into super
A common use of salary sacrifice is to make additional superannuation contributions.
For example, an employee earning $125,000 per year may agree with their employer to sacrifice $10,000 of salary into their super fund.
In this scenario the employer may:
Deduct PAYG tax from the remaining salary
Contribute the sacrificed amount into the employee’s super fund
Add compulsory employer contributions under the super guarantee
Super contributions made through salary sacrifice are generally taxed at 15 percent within the super fund, which may be lower than many individuals’ marginal tax rates.
This is one reason salary sacrifice into super is widely used, although the overall outcome can depend on individual circumstances and contribution limits.
What is fringe benefits tax (FBT)?
Fringe benefits tax (FBT) is a tax applied to certain non-cash benefits provided to employees.
Instead of being paid by the employee, FBT is generally paid by the employer.
FBT applies to benefits provided to:
Employees
Associates of employees such as spouses or children
Examples of benefits that may be subject to FBT include:
Cars provided for private use
Loan repayments or mortgage assistance
Gym memberships
Certain entertainment benefits
The current FBT rate is 47 percent of the taxable value of the benefit.
The FBT year runs from 1 April to 31 March, which differs from the standard financial year.
Employers report these benefits to the ATO and may also include reportable fringe benefits amounts on employee income statements where required.
Types of salary sacrifice benefits
Salary packaging arrangements can include several different categories of benefits depending on the employer and industry.
The three broad categories often include fringe benefits, exempt benefits and super contributions.
Fringe benefits
Fringe benefits include benefits that may attract fringe benefits tax.
Examples can include:
Company cars
Mortgage or loan repayments
Gym memberships
Childcare benefits
Because FBT may apply, the financial impact of salary packaging these benefits can vary.
In some situations the FBT payable by the employer may reduce the overall value of the arrangement.
Exempt or minor benefits
Some benefits may be exempt from FBT under certain conditions.
These are sometimes referred to as minor or work-related benefits and can include tools or electronic devices needed for work.
Examples may include:
Laptops
Tablets
Mobile phones
Other portable electronic devices
Eligibility conditions apply and the benefit must generally be primarily used for work purposes.
Superannuation contributions
Salary sacrificed super contributions are generally not treated as fringe benefits.
Instead, they are classified as concessional contributions within the superannuation system.
However, if contributions are paid to a non-complying super fund or certain associates, they may be treated differently for tax purposes.
It is also important to understand that super contributions are subject to annual caps.
Super contribution caps
Concessional contributions include:
Employer super guarantee contributions
Salary sacrifice contributions
Personal contributions claimed as a tax deduction
These contributions are subject to a cap.
Exceeding the cap may result in additional tax.
Contribution limits can change over time, so checking the latest figures through the ATO or MyGov is generally recommended.
Other things that may be affected by fringe benefits
Reportable fringe benefits amounts may also be used when calculating eligibility for certain government programs or obligations.
Depending on the situation, they may influence calculations related to:
Family tax benefit
Medicare levy surcharge
Private health insurance rebate
Child support obligations
Student loan repayments such as HELP
Super contribution taxes such as Division 293
Because these rules interact with multiple parts of the tax system, salary packaging arrangements may have broader implications beyond take-home pay.
Salary sacrificing for a first home
Some Australians may use super contributions as part of the First Home Super Saver Scheme.
This government program allows eligible first home buyers to withdraw certain voluntary super contributions to help purchase their first property.
The scheme allows withdrawals of eligible voluntary contributions and associated earnings, up to limits set by the government.
Salary sacrifice contributions may form part of those voluntary contributions.
Understanding salary packaging and FBT
Salary sacrifice and fringe benefits tax can be complex areas of the Australian tax system.
The value of any arrangement can depend on a range of factors including:
The type of benefit provided
FBT treatment
Contribution caps
Individual tax circumstances
For this reason many employers provide structured salary packaging programs or guidance on available benefits.
Learn more about managing your finances
Understanding how super contributions, tax settings and employer benefits work together can play an important role in long-term financial planning.
Digital financial advice platforms like Otivo provide tools that help Australians explore areas such as:
Superannuation optimisation
Retirement planning
Debt management
Insurance cover
Budgeting and financial wellbeing
These tools are designed to help people better understand their financial position and the potential impact of different decisions.
© Otivo (Map My Plan Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence no. 485665, trading as Otivo). The information and resources provided in this article are current as at June 23 and are for general educational purposes only. The content has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should consider the appropriateness of the information against your own situation and needs before taking any action. We recommend you read the relevant Product Disclosure Statement (PDS) or offer documentation before taking up any financial product offer. Target Market Determinations can be found on the provider’s website. Sources: 2022-23-24 tax and super rates and thresholds have been used. SG amount is calculated as Salary (uses ordinary times earnings) / (1 + SG rate 11% for 2023-24).