Yes, if it's an option at your workplace, but don't forget to read the fine print. Here are a few things to look out for when setting up a salary sacrifice agreement with your employer.
What is salary sacrifice?
It's an arrangement between you and your employer allowing you to pay for certain goods (eg. your favourite car) or services straight from you pre-tax salary. The result means your taxable income is reduced; sounds pretty good right? If you've never heard of salary sacrifice before, these agreements are also referred to as salary package deals.
What car-related goodies can you salary sacrifice?
Both the running costs of your snazzy new automobile, plus the financial payments can be sacrificed up to a certain limit. You can do this with a new or used car, or even your existing car. The details will be determined in the terms of the agreement and you'll need to clarify exactly what will be covered when you set up the agreement.
When do you create a salary sacrifice agreement?
Your salary sacrifice agreement must be finalised before you start work at your job. If you arrange it after you've started working, it may not be valid. Get in there quickly while you're finalising your contract!
What are the benefits?
By decreasing your taxable income, you will move into a lower tax bracket so you'll need to pay less tax at the end of the year.
Here's an example:
Imagine you earn $100,000 a year and you want to buy a new work-related car, worth $22,000.
If you want to salary sacrifice the cost of the car, your taxable income will become just $78,000 instead of $100,000, placing you in a lower tax bracket.
The result? You pay less tax on your income, plus own a tax-free car. Brilliant.
Fringe Benefits Tax (FBT) and why you need to know about it
If your eyes glaze over every time you hear the word -tax,' you may want to perk up if you're planning on asking for a salary sacrifice agreement for your favourite car.