Assemble the package from its real components

Salary packaging is an exchange, not a deduction entered after payday

The ATO describes salary sacrifice as an arrangement where an employee gives up part of a future salary or wage entitlement in return for a benefit of similar value. The agreement must be effective before the employee earns the entitlement. Directing already-earned salary to a provider does not automatically convert it into a valid pre-tax package.

Under an effective arrangement, the employee pays income tax on the reduced cash salary. The employer may have fringe benefits tax obligations for non-cash benefits. Salary-sacrificed super is treated as an employer contribution and is taxed under super contribution rules rather than as ordinary cash salary. Those consequences are different, which is why the calculator keeps separate input lines.

How the cash comparison is calculated

The baseline starts with gross cash salary and estimates resident income tax, LITO and the selected full 2% or zero Medicare levy scenario. The package scenario subtracts the benefit cost, super sacrifice, administration amount and the entered share of employer FBT recovered from the package. The remaining amount is treated as taxable cash salary.

Cash take-home after packaging is that reduced salary minus estimated income tax and levy and minus the entered after-tax employee contribution. The displayed economic value then adds the non-cash benefit and the salary-sacrificed super after the entered contribution-tax rate. This comparison helps identify where value went, but it does not prove the benefit is worth its invoice cost to the employee.

A benefit could be worth less because it restricts choice, ends when employment ends or includes a lease commitment. It could be worth more because an employer negotiates a discount. Use a realistic personal value if the nominal provider cost would exaggerate what the benefit replaces in the household budget.

FBT taxable value, gross-up type and package recovery

Fringe benefits tax is paid by the employer, not assessed as the employee’s ordinary income tax. The employer first works out the taxable value under the rules for that benefit. It then uses a gross-up rate and applies the 47% FBT rate. Since the FBT year ending 31 March 2019, the ATO’s calculation guidance uses 2.0802 for type 1 benefits and 1.8868 for type 2 benefits.

Type 1 generally relates to benefits for which the employer is entitled to a GST credit; type 2 relates to benefits without that credit. Classification belongs to the employer’s FBT calculation. The calculator multiplies the taxable value by the selected gross-up rate and 47%, then includes only the percentage you say the employer recovers from the package.

Benefit cost and FBT taxable value are not synonymous. Car benefits, expense payments, entertainment, remote-area benefits and exempt items have specific valuation and reduction rules. An employee contribution can reduce taxable value in some arrangements but is paid from after-tax cash and may have GST consequences for the employer. Enter the provider’s or employer’s final taxable-value estimate rather than guessing from invoice cost. Keep the taxable-value working paper with the package quote because the treatment can change when usage, reimbursement evidence or benefit type changes.

Reportable fringe benefits can affect income tests without being ordinary taxable income

If the total taxable value of certain reportable benefits provided to an employee exceeds $2,000 in an FBT year, the employer generally reports a grossed-up amount. The employee does not add RFBA to taxable income and does not pay ordinary income tax or Medicare levy directly on that reported figure.

However, RFBA can be included in income tests for government benefits and obligations. The ATO lists possible effects involving Medicare levy surcharge, private health insurance rebate, child support, HELP and other programs. A salary package that improves immediate cash tax can therefore have a separate consequence elsewhere.

The employee RFBA calculation uses the lower gross-up approach, not necessarily the employer’s type 1 gross-up used to calculate FBT. This page multiplies the entered reportable taxable value by 1.8868 only when it exceeds $2,000. Some exempt or otherwise excluded benefits may still have special reporting treatment; others are not reportable. Use the employer’s income statement as the source of truth.

Super sacrifice uses contribution caps, not FBT arithmetic

Salary-sacrificed super contributions are employer contributions and generally count towards the concessional contributions cap. The general cap has been $30,000 from 1 July 2024. Compulsory employer contributions, sacrificed contributions and personal deductible contributions can all use the cap, so the available room cannot be found from salary sacrifice alone.

The calculator applies the contribution-tax percentage you enter solely to show an approximate net amount reaching super. A standard 15% assumption is not universal. Division 293 tax can apply to some higher-income individuals, excess contributions have separate treatment, and a fund can have deductions, insurance premiums and investment returns.

Salary sacrifice must not reduce the employer’s super guarantee obligation as if the sacrificed amount replaced compulsory support. Check the payslip and fund transactions. Also compare liquidity: money in super is preserved subject to release conditions, while a non-cash benefit may fund a current expense.

Documents to request before signing a package

Ask how leave, unpaid leave, termination, reimbursements, unused balances and mid-year changes are reconciled. Confirm whether the quoted saving assumes the employer is FBT-exempt or rebateable, because not-for-profit caps and rules are organisation-specific. Save the assumptions and FBT year beside the estimate. Compare the provider’s pay-cycle deduction schedule with annual totals so rounding or a partial year does not quietly change the expected cash flow.

Re-run the comparison with a lower personal value for the benefit, a higher provider fee and any RFBA-driven cost you can quantify. A robust package should still make sense when reasonable assumptions move against it. Also test the result with no assumed tax saving; that reveals the underlying cost of the benefit and contract on their own.