For employees salary packaging or salary sacrifice is a great way to stretch hard earned dollars further. The ability to reduce tax payable by paying for certain expenses in pre-tax dollars may improve cash flow. It may make the unaffordable, affordable.
Two of the more common benefit items that are salary packaged are personal superannuation contributions and salary packaging a personal use car via a novated lease. the latter is the "big ticket" item for most employees.
What determines the range of benefits that an employee can salary package is determined by the employers Fringe Benefit Tax status.
For employers it is a tremendous way to retain, attract and reward employees through tax legislation. Salary packaging or salary sacrifice is a tax saving benefit under Australian Taxation legislation.
It allows employees to receive tax concessions and savings which are dependant upon the employer's Fringe Benefit Tax (FBT) status. The employer's FBT status determines what type of items (benefits) can be packaged.
Benefit items are paid using pre-tax dollars which decreases the employee's taxable income and Medicare levy. The tax benefit is received based on the employee's pay cycle.
Typically, a salary packaged car under a novated lease arrangement is the "big ticket" item and traverses all FBT employer categories.
The benefit for employers is that it can provide a benefit to employees without greatly impacting its own resources. Tax legislation provides the direct benefit to employees!