Salary Sacrifice and Salary Packaging

What is a salary sacrifice arrangement?

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value.

Packaging needs the agreement of both employer and employee. For the employer, packaging has some advantages such as the ability to attract employees and it may also act as an incentive to increase productivity.

However the administration costs need to be considered. As such, some employers only offer limited forms of packaging.

Fringe benefits

Common fringe benefits include:

  • cars
  • property (including goods, real property such as land and buildings, and shares or bonds)
  • expense payments (such as the payment of your loan repayments, school fees, child care costs and home phone costs).
  • Exempt benefits

A number of benefits are exempt from fringe benefits tax (FBT). The following work-related items commonly provided in salary sacrifice arrangements are exempt benefits:

  • a portable electronic device
  • an item of computer software
  • an item of protective clothing
  • a briefcase
  • a tool of trade.

The work-related items exemption is limited to:

  • items primarily for work-related use
  • one item per FBT ear for items that have a substantially identical function, unless the       item is a replacement item.


Salary sacrificed superannuation contributions under an effective salary sacrifice arrangement are considered to be employer contributions which, when paid for an employee to a complying superannuation fund, are not fringe benefits.

However, superannuation contributions made for the benefit of an associate, such as your spouse, are a fringe benefit. Similarly, contributions paid to a non-complying superannuation fund will be a fringe benefit.