Salary sacrificing with today's current tax rates doesn't have the same bite as it used to back the start of the 21st century and earlier.  This is generally because many more PAYG taxpayers have fallen into lower tax brackets, while the rate of Fringe Benefits Tax is applied at the top marginal tax rate.

A QUICK SUMMARY OF HOW SALARY SACRIFICING WORKS

An employer more so in today's market will put aside a set sum for the cost of having a particular employee, lets say for our example, $100,000 including the 9% super. 
They may allow the employee to structure that package how they wish, as long as the cost to the employer at the end of the day remains $100,000. 
Within this boundary, the employee may decide to salary sacrfice some extra super, and their personal car.  So effectively cash wise, out of the $100,000 the employer will pay

• extra super - Let's say $10,000 per annum
• car costs - running costs and finance repayments - Let's assume $10,000 per annum

and the remaining $80,000 allows for -

• $73,395 wage to employee and appropriate withholding tax on that to the ATO -total we'll refer to as "cash wage"
• and also $6,605 (9%) super guarantee

On the face you'd say the employee is only paying tax on $80,000, instead of a $100,000 and saving tax and therefore better off of $8,300 (2008/09 tax rates).  Wrong.

THE REAL EQUATION

What will happen with the car costs the employer pays is that the employer will have to pay Fringe Benefits tax on the "value" of this benefit.  As in this example the car is for personal use, that is, even though you drive it to work every day, if you take it to where you live, even if you only park it in the garage, its deemed to be "available for private use" for that entire day.

There are two methods of calculating the "value" of this benefit under Fringe Benefits Tax.  We won't go into these complexities here, however will provide guidance on how to effectively reduce the "value" further on.  Let's say the car is worth $30,000, and you travel the average 20,000km per annum.  This is going to mean your employer has to pay an additional $5,215 in Fringe Benefits Tax.  And where will they take this from?  Your cash wage.  Remember at the end of the day your employer's total cost has to be $100,000.  Generally they'll also charge you a salary packaging administration fee of about $300 - $500 to manage and calculate it all. That fee is generally not tax deductible to you.  However, we'll ignore this cost for our example.

HOW THIS SCENARIO SITS NOW

If you don't salary sacrifice at all we calculate an in the hand cash amount of $67,670, that's after your super and tax is taken out of $100,000.

If you do salary sacrifice in the above example, we calculate a cash wage amount of $52,704, but add back the $10,000 you didn't have to pay for your car, and the $10,000 extra paid into super for you provides $72,704.  That's $5,034 better off.

Still a good result, but this example as an illustrative flaw.  That flaw is that the salary sacrificed super is an "exempt" fringe benefit, and, you don't get that $10,000 in hand - its in your superfund until you reach a condition of release.

SO WHEN IS IT GOOD TO SALARY SACRIFICE, AND WHEN IS IT NOT EFFECTIVE?
 

Its a good question, but as long as a piece of string.  We can however say that it is very much dependent on your level of income.  On 2008/09 tax rates, calculating the marginal scales, you aren't paying 30% tax until you're earning about $120,000.  If you think about taking out a non exempt benefit where you're effectively going to reimburse your employer 45% tax on that portion, it will be a tight situation to be better off in.  On that premise, we make the bold statement that employees earning $80,000 and under should not salary sacrifice non exempt benefits, which we illustrate below. 

Here are 4 examples with a range of package amounts that provide varying results.

HOW CAN I EFFECTIVELY SALARY SACRIFICE?
 

The short answer to this, is to only sacrifice "fringe benefit exempt" benefits, which includes;

• super
• laptops, PDAs & laptop printers used predominantly for work purposes
• expenses that are tax deductible to you anyway (referred to as otherwise deductible)

For motor vehicles, the effective ways to reduce the "value" for fringe benefits tax is;

• pay for fuel and running costs yourself and your employer just pays the finance repayments.  This is called an "employee contribution" and comes off the "value" of the benefit.
• travel more kilometres each year - over 25,000 is achievable and good, and over 40,000 would be better
• if you do use your vehicle for work purposes a lot, keep a 3 month log book.  This gives your employer a choice of methods to calculate the "value" - and they can choose the lowest one.
• Don't salary sacrifice, and instead purchase the car yourself and have your employer pay you an untaxed car allowance out of your package.  You'll only get a deduction for the proportion you use the car for work, but it will remove the fringe benefits complexities and costs.
• Leave the car at your place of work so its not "available for private use".

Anything more complex than this, you need to have your accountant crunch out numbers on perhaps a combination of exempt/non exempt benefits and differing scenarios to see where you are better off cash wise.