As the end of the financial year (EOFY) approaches, many small and medium-sized businesses in Australia are seeking effective ways to optimise their tax position, support or reward their staff, while of course staying compliant with ATO regulations. One valuable tool that offers both business tax benefits and employee incentives is salary sacrificing.

Read for a succinct guide to salary sacrificing, and how to make this effective for your business, valuable to your employees, and compliant from a tax accounting perspective.

What is salary sacrificing?

Also known as salary packaging, salary sacrificing is an arrangement where an employee agrees to forgo a portion of their pre-tax salary in exchange for approved benefits. Instead of receiving this income as cash, it’s redirected toward things like superannuation, novated leases, or technology purchases. This reduces taxable income and potentially results in tax savings for employees.

Business benefits of salary sacrificing

Salary sacrificing, when correctly managed and implemented, could have many benefits for a business:

• Attracting and retaining talent: Offering salary sacrificing makes your business more attractive to potential employees and can keep your best employees happy.
• Potential payroll tax savings: In some cases, salary sacrificing can reduce your payroll tax obligations. This can translate to significant savings over time.
• Improved employee morale: Providing valuable benefits can help employees feel valued and supported, increasing their engagement and productivity.
• Savings and convenience: If your business provides company vehicles, offering a novated lease arrangement can simplify fleet management.
• Competitive edge: Offering salary packaging can set you apart from other employers.

How employees benefit from a salary package

Offering a salary package is not just good for your business, it’s also attractive to employees, especially when tax savings are top of mind during EOFY accounting.

• Reduced taxable income: By sacrificing pre-tax salary, employees can lower their taxable income, potentially resulting in significant tax savings.
• Increased superannuation: Employees can boost their retirement savings and take advantage of concessional tax rates by sacrificing pre-tax salary into their superannuation fund.
• Access to desirable benefits: Salary sacrificing can allow employees to access benefits like novated leases or technology items in a tax-effective way, making them more affordable.

Superannuation

Contributing additional pre-tax salary to superannuation is a popular option. An employee earning $100,000 per year might choose to salary sacrifice $10,000 into their super fund. This reduces their taxable income to $90,000 and can potentially help reduce payroll tax liabilities for the business.

Novated leases

Employees can lease a car through a salary sacrifice arrangement. If an employee leases a car for $600 per month, this amount is deducted from their pre-tax salary, reducing their taxable income and making purchasing a new car more convenient.

Technology items

Some businesses allow employees to salary sacrifice for laptops or other technology. If an employee needs a new laptop for work, they can salary sacrifice the cost over a set period, reducing their taxable income and giving them access to necessary tools — boosting productivity for the business.

Professional development

By salary sacrificing for professional development or education, employees can improve their skills — which benefits your business. For example, sacrificing for a certification course reduces taxable income while enhancing career prospects and team capabilities.

Other allowable items

There are other less common items that can be salary sacrificed. It’s important to check with the ATO and your accountant before offering these, as incorrect application can increase tax obligations for the business.

Why professional accounting advice matters

Implementing salary sacrificing without guidance from a qualified accountant or business advisory service can introduce risks. Always seek advice from expert tax professionals to help you navigate the complexities of ATO rules, ensure compliance, avoid potentially costly mistakes, and minimise the risk of penalties or disputes.

Tax laws are also frequently changing. Engaging a professional can provide peace of mind and allow you to focus on running your business, knowing you have access to the most current advice and information.

Get expert support and advice on tax and accounting for salary sacrificing

At LDB, we specialise in tax advisory, accounting services, and EOFY support for Australian small and medium-sized businesses. We help structure compliant salary sacrifice programs and ensure you’re getting the most out of your benefits strategy — for both your business and your employees.

Contact LDB on (03) 9875 2900 today to book a personalised consultation, and make your EOFY tax strategy work harder for your business.