For employees, salary sacrifice schemes (also known as ‘fringe benefits’ or ‘salary packaging’) reduce the amount of taxable income. One of the many ADF salary sacrifice advantages is to help them save on car leasing costs and other work-related expenses.
These arrangements typically avoid fringe benefit tax (FBT) because they are paid out of pre-tax earnings. They also offer a range of other advantages for ADF personnel.
1. Tax-effective
Being an ADF member comes with a host of financial perks beyond your paycheque. From superannuation, paid trade qualifications and subsidised accommodation to disability support and even a home loan scheme, there’s plenty of scope to build wealth and secure your financial future.
Salary sacrifice is one way to do this. By agreeing to reduce your salary in exchange for a non-cash benefit, you can lower your taxable income and avoid paying higher rates of tax. A common example is salary sacrifice and extra superannuation contributions. It will save you money on income tax and allow you to make additional super contributions without impacting your Centrelink payments.
You can also salary sacrifice a range of other expenses. These can include items that would normally be subject to fringe benefits tax (FBT), such as computers, furniture and clothing. However, for these to be exempt from FBT, you must demonstrate that the expense is primarily used for work. It may not be easy to prove in the case of equipment such as a car, which must be used for both work and private purposes.
2. Flexibility
As an ADF member, you’ll enjoy many financial perks beyond your hard-earned paycheque. There’s generous superannuation, paid trade qualifications, subsidised accommodation and home ownership schemes. Plus, you can salary sacrifice your pre-tax salary to help reach your retirement savings goals sooner.
This arrangement, also known as total remuneration packaging (TRS), allows you to sacrifice some of your before-tax wages into benefits such as superannuation contributions, cars or personal tax-deductible expenses. The amount of tax you save will depend on your marginal tax rate. For example, salary sacrificing $10,000 into your super reduces your taxable income by that same amount, so you’ll pay less income tax.
3. Investing
Putting more money into your super now rather than later can make a big difference by the time you retire. A key part of this is salary sacrificing, but it’s important to get professional advice to ensure it suits your circumstances.
A salary sacrifice arrangement allows you to divert a portion of your pre-tax income into super and then invest that money in the fund of your choice. The investment returns from those investments can add up over time, which could lead to a much bigger pot by the time you’re ready to retire.
One of the biggest ADF salary sacrifice advantages is that it reduces your taxable income, meaning you pay less tax1. The amount you sacrifice into super can be taxed at a rate of 15 per cent, which is often lower than the rate you’d pay on that money if you received it as salary.
However, you’ll need to take into account the timing of your salary sacrifice contributions, as well as any other remuneration you receive from your employer (such as overtime or holiday loading). It would be best if you also were careful not to exceed the concessional contribution cap, which is currently $27,500 per year.
4. Retirement
ADF salaries compare well with similar civilian jobs and come with a range of allowances and benefits that can’t be found elsewhere. These include a competitive salary, free medical and dental care, and paid training.
You may also have the option to put salary sacrifice into your superannuation fund. It is done by a special arrangement between you and your employer to have part of your pre-tax income paid into your super instead of being paid directly into your bank account. It is one of the most common forms of salary packaging, and it can be an effective tax-efficient strategy for many people.
