Salary sacrifing is an agreement between an employee and employer whereby the employee can purchase a notebook (laptop) computer for considerable saving. It works by the employer covering the cost of the notebook and the employee forgoing part of their future salary in exchange for the notebook. The reduction in pre-tax wages is equal to the value of the notebook, thus the employee pays no income tax on earnings withheld for the notebook purchase. An employee can only salary sacrifice one notebook per FBT year.
As well as notebooks salary sacrificing can be applied to other portable devices such as PDAs, tablet PCs and electronic diaries. Some employers also allow desktop computers to be salary sacrificed so you should check terms and conditions with your employer.
The effect of this is to discount the real cost of the notebook by the rate of income tax that would otherwise be payable on the income used. For most this will mean a discount of between 17% and 47% on the purchase price.
An employee earning $60,000 per annum (47% income tax rate) wishes to purchase a laptop costing $3,000 including GST. If the purchase was made in the traditional way, the employee would need to earn $5,172 before the deduction of income tax to pay for it.
If salary sacrificed, the employee would need to earn the purchase price of $3,000 to pay for it.
Salary sacrifice can work one of two ways:
You buy the notebook outright and your employer pays you back over a specified period, or;
Your employer purchases the notebook for you and as a result your pre-tax wages are reduced to cover the cost until it is paid back. Your employer also covers the GST (an instant saving of 10%)
Step 1: Discuss with your employer a salary sacrifice agreement to facilitate the purchase of a notebook computer.
Step 2: Formalise the salary sacrifice agreement in writing.
Benefits to employer
Salary sacrificing benefits the employer as well as the employee. It provides to the employee with a tool (at a discounted price) that will enable them to be more mobile with their work. A notebook will allow an employee to take their work with them on the road or even home making them more efficient.
Cost of computer (RRP) = $3,200
Your tax rate = 41.5%
Tax rate x RRP = $1,328
You pay : $3,200 minus $1,328 = $1,872