Have you got a handle on what a salary sacrifice agreement can do for your finances?
That time of year is nearly here – the cut-off to lodge your tax return! As we creep towards the deadline, for those of us who haven’t had the chance to jump onto this necessary life admin, it’s time to get things looking ship shape. Are you someone who has chosen to salary sacrifice with your employer? Have you been considering it? Here’s what you need to know about how it can help you achieve your home loan goals.
What is salary sacrificing?
Don’t panic, you’re not totally relinquishing a chunk of your pay cheque! You may have heard of salary packaging before, well this is another term for salary sacrifice or total remuneration packaging. Basically, it’s is an agreement between an employee and their employer where part of the employee’s salary is forgone in return for the employer providing benefits of a similar value.
The general gist is that a portion of your salary is “sacrificed” or directed towards another type of payment. So, why would you do this? Because the amount you “sacrifice” is deducted from your salary, so your taxable income is less and you don’t pay tax on the portion of the salary that’s sacrificed – so you save money overall.
There’s no restriction on the types of benefits you can sacrifice – from new car to childcare fees to home loans – but it’s up to your employer to decide what type of arrangements they offer. The important thing is that these benefits form part of your remuneration. In other words they replace what otherwise could have been paid as salary.
Things you need to know about salary sacrifice at tax time
It’s important to note that when salary sacrificing occurs, your employer may be responsible for paying a Fringe Benefit Tax (FBT) on the amount deducted from your salary. In some arrangements, this FBT is deducted from the employee’s salary or contributed to by the employee – depending on the agreement.
Your employer will need to report your FBT on your annual payment summary when it exceeds a certain amount within a financial year. This is reported so the government can use the information to determine various calculations including your eligibility for child care benefit, family tax benefits or working out how much you need to pay back against your Higher Education Loan.
Some people use salary sacrifice to help grow their super, by contributing above the 9.5% required by the employer.
So how can Salary Sacrifice help you save towards home loan?
If you’re trying to save for a home loan, every little bit counts. Ask your employer if salary sacrificing is an option at your place of work. The important thing is, acknowledge the savings you make when choosing to salary sacrifice so you can deposit them into an account to help grow your deposit for a home loan.
If you want to talk to your Aussie broker about securing a home loan, feel free to get in touch here.