An introduction to the concept of salary sacrificing

Salary sacrificing has become a popular and effective way for employees to reduce their taxable income and increase their take-home pay. This arrangement, which is also known as salary packaging, allows employees to sacrifice a portion of their pre-tax salary in exchange for non-cash benefits, such as cars, computers, superannuation or other expenses. One of the most common salary sacrificing arrangements is through an ATO salary sacrifice agreement.

What is an ATO salary sacrifice agreement?

An ATO salary sacrifice agreement is an arrangement made between an employee and their employer that allows them to opt-in to a salary sacrifice scheme. This agreement is typically used for superannuation purposes, and when an employee signs such an agreement, they agree to have a portion of their pre-tax income paid into their super fund instead of receiving the funds as take-home pay.

The ATO salary sacrifice agreement is a beneficial arrangement for both employers and employees. For employees, it can increase their retirement savings and reduce their taxable income, while for employers, it can be an effective way to attract and retain high-performing employees.

Benefits and considerations of an ATO salary sacrifice agreement

There are many benefits to an ATO salary sacrifice agreement. Firstly, it can help employees save money for retirement, as the funds sacrificed are paid into their super account, which is taxed at a lower rate than their regular income. Additionally, an ATO salary sacrifice agreement can help employees reduce their overall taxable income, which can result in a lower tax bill and an increase in their take-home pay.

However, it is important to note that an ATO salary sacrifice agreement may not be suitable for everyone. Employees should consider their financial situation and retirement goals before agreeing to sacrifice a portion of their salary. They should also be aware of any potential limitations or restrictions that may apply to their super fund.

Conclusion

If you are considering an ATO salary sacrifice agreement, it is important to carefully weigh the benefits and considerations before making any decisions. With the help of your employer and a qualified financial advisor, you can determine whether this arrangement is right for you and your financial goals. Ultimately, the decision to enter into a salary sacrificing arrangement is a personal one that should be made after careful consideration.