What Is Salary Sacrifice?

Salary sacrifice, sometimes referred to as salary packaging, is when you buy something using your pre-tax income instead of your after tax income. This is usually set up with your employer, they will take the amount out of your wages/salary before it is given to you. This means you are left with a lower amount of taxable income.

For example, say you earned $50,000 a year and you wanted to buy a new computer for work, worth $2,000.

With salary sacrifice, the $2,000 would be taken out before you receive your income. So you would end up with a $48,000 taxable income figure, and the computer. Therefore you don't have to pay the income tax rate on that $2,000.

If it was done without using salary sacrifice, you'd receive your $50,000 usual income, pay tax on that $50,000, then buy your computer.

Basically, using the above example, if you use salary sacrifice, you will pay tax on $48,000 income. If you don't use salaray sacrifice, you will pay tax on the whole $50,000.

For more information, on what you can use salary sacrifice on, and how you do it, read our Salary Sacrifice Guide.

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