When an employee gives up the right to a part of his or her remuneration due under his/her contract of employment, he/she is said to have taken a Salary Sacrifice. Usually, in lieu of the sacrifice, the employer provides the employee with some non-cash benefit of an equal value. The amount of sacrifice varies according to the terms and conditions of employment relating to remuneration.
To define salary sacrifice in the simplest terms is availing noncash remuneration in exchange of salary. This non-cash remuneration could be anything: Food coupons, entertainment coupons, etc. Earlier, Non-Cash Benefits were a part of the taxation system. Though there have been attempts to rectify this with the fringe benefit taxes, it has not been of many advantages. The scope of salary sacrifice is still rather limited.
Usually, people prefer to sacrifice when they see Tax Benefits. As by sacrificing salary, the on-paper gross salary gets lower, whereby lowering the income tax.
By collecting non-cash incentives, they get to pay lower taxes. Usually, people in the medical industry use Salary Sacrifice and convert it into meal entertainment, if this is done they save as no FBT is imposed on the coupons thus collected.
Before deciding to opt for a salary sacrifice, one needs to have a talk with their employer, as the tax Benefits vary from industry to industry. One needs to see how they will be benefited the most. Salary sacrifice, for most people, is used to get a laptop, to put more money into Superfund, making payment straight into their investment loan account – whereby FBT is exempted.
Before one makes any solid plans of sacrifice, one needs to make sure that the terms and conditions are transparent and both the employer and the employee are aware of them. The terms should preferably be in a written form. we at Rayvat Accounting provides Tax Accountants and excellent bookkeeping services.