Payroll tax on salary sacrifice arrangements
Under a salary sacrifice arrangement (also known as salary packaging or total remuneration packaging), an employee agrees to forgo part of their pre-tax salary for other non-cash benefits.
Non-cash benefits may include:
- fringe benefits (e.g. a car under a novated lease, payment of school fees or child care costs)
- exempt benefits (e.g. a work-related laptop or portable computer)
- pre-tax superannuation contributions.
Effective salary sacrifice arrangement
An effective salary sacrifice arrangement must:
- be entered into before the employee performs the work
- be between the employee and employer
- ensure the employee no longer has access to the sacrificed salary.
Payroll tax on an effective salary sacrifice arrangement is calculated on the:
- salary or wage reduced by the sacrificed amount
- pre-tax superannuation contribution
- taxable value of the benefit under the Fringe Benefits Tax Assessment Act 1986 (Cwlth), grossed-up by the Type 2 rate as shown on the fringe benefits tax (FBT) return.
Exempt benefits are not liable for payroll tax.
John’s salary is $55,000 per annum. He enters into a salary sacrifice arrangement to make an annual $5,000 pre-tax contribution into his superannuation fund. John’s salary is reduced to $50,000 and his employer makes a pre-tax super contribution of $5,000.
Payroll tax is payable on $55,000:
- $50,000 reduced salary
- $5,000 pre-tax employer super contribution.
Mary’s salary is $80,000 per annum. She negotiates a salary sacrifice arrangement for a $2,000 laptop for work purposes. Because the laptop is exempt from FBT, payroll tax is only payable on Mary’s reduced salary of $78,000.
Mike’s salary is $70,000 per annum. He negotiates with his employer to enter a salary sacrifice arrangement for a car under a novated lease. Mike’s taxable salary is reduced to $58,000 per annum. The taxable value grossed-up by the Type 2 factor of the car for FBT purposes is $4,250.
Payroll tax is payable on $62,250:
- $58,000 reduced salary
- $4,250 FBT taxable value.
Ineffective salary sacrifice arrangement
If any of the conditions for effective salary sacrifice arrangement are not met, the sacrificed amount is treated as salary or wages. Payroll tax is payable on the total wage or salary, including the sacrificed amount.
When calculating your taxable wages, include payments made under ineffective salary sacrifice arrangements.
When you lodge your:
- periodic return, include these payments as part of your Queensland taxable wages
- annual return, enter these payments in the ‘Gross salary and wages’ field as part of your Queensland taxable wages.