What is Salary Packaging?

What is Salary Packaging / Salary Sacrifice?

Salary packaging is a phrase used to describe a process of converting your ordinary gross salary and wages into fringe benefits. This is achieved by you entering into a salary sacrifice agreement with your employer.

The salary sacrifice agreement is an agreement where you agree to forego part of your future entitlement to salary or wages and in return your employer provides you with non cash benefits (i.e. fringe benefits) to the same value you have agreed to forego.

EXAMPLE

Peter is paid a gross salary of $40,000 (i.e. this is the pre-tax amount of salary) per annum. He agrees with his employer (in writing) to sacrifice $15,899 of his  salary in return for his employer paying his mortgage directly at the rate of 611.53 per fortnight. Peter is now paid a gross salary of $24,101 (which will now be subject to tax) in cash plus his bank will receive the $15,899 directly from his employer as a loan repayment.