The imminent increase to the Medicare Levy and the planned Deficit Tax will soon make salary sacrifice even more attractive.
By way of background, from 1 July 2014, the Medicare Levy will increase from 1.5% to 2%. For those who are employees and there are therefore in a position to salary sacrifice, the increase in the Medicare Levy actually increases the tax effectiveness of salary sacrificing. This is because the Medicare Levy does not apply sacrificed amounts whereas it does apply to your taxable income. However to emjoy this tax saving, you will need to sacrifice benefits that are exempt from fringe benefits tax such as superannuation, tools of trade, work related laptops, briefcases etc. Where you sacrifice benefits that attract FBT (such as home loan repayments, cars used privately, school fees etc) the higher FBT rate of 47% will apply and thuse negate the benefit of this strategy.
The tax effectiveness of salary sacrifice will be enhanced even further if the Government goes ahead with its planned Deficit Tax which has been foreshadowed in recent times. If implemented as reported, from 1 July 2014 the Deficit Tax would add 1% to the current 37% personal income tax rate, and 2% to the top marginal rate of 45%. By salary sacrificing FBT exempt benefits however (such as superannuation) you can avoid these tax increases, and of course enjoy the benefit for which you have sacrificed salary (eg superannuation, laptops etc)
Those wanting to enter into a salary sacrifice arrangement, should discuss it with their employer.