Salary sacrifice charity donations

In Australia, salary sacrifice is an arrangement where an employee agrees to receive a smaller salary (and only pay income tax on that smaller salary) in exchange for non-cash benefits. For example, the employee may choose to donate $15,000 via salary sacrifice in exchange for a work car.

It’s different to another term you may have heard: workplace giving. Workplace giving is a simple payroll deduction that sends a portion of your pay directly to a charity with Deductible Gift Recipient (DGR) status. 

For donors, the distinction matters. Salary sacrifice benefits usually relate to employee entitlements or non-cash benefits (like the work car above), while workplace giving is treated as a charitable gift with accompanying tax benefits.

In short, salary sacrifice and workplace giving serve different purposes: salary sacrifice changes how part of your remuneration is provided, while workplace giving is the mechanism that allows donations to DGR charities to be made through payroll.

Last year, workplace givers donated $420,000 to Oxfam Australia, which continues to help us tackle poverty all over the world.

Not all workplaces offer workplace giving programs. But for those who do, it runs through your employer’s payroll system. Once you nominate a donation amount and choose a DGR charity, your employer deducts that amount from each pay cycle and transfers the total directly to the charity.

You’ll see the donation listed on your payslip, and usually your tax-time income statement. The donation is tax-deductible.

Salary sacrifice donations to charity are processed differently. They provide you with a benefit (such as extra superannuation or a work vehicle), so they aren’t considered charitable gifts and aren’t tax deductible for you (the employee). But it does reduce your taxable income, so you will pay less income tax for that year.

Understanding the difference helps you decide which option aligns with how you want to give, and how it affects you at tax time.

Workplace giving looks simple on your payslip, but there’s a bit happening behind the scenes. When you donate through your pay, your employer also adjusts the amount of tax they withhold from your pay.

So, your donation is processed through payroll and you receive the tax benefit straight away. You don’t need to track receipts — your payslips also serve as a record if you need one.

The end result is the same as claiming a deduction, but you receive the tax benefit as you go. It’s a streamlined way to give. Calculate your potential savings with our tax deduction calculator.

Salary sacrifice works very differently from workplace giving. When you salary sacrifice an amount, that money is never counted as part of your assessable income, and the ATO treats your employer as the donor (remember, you’ve received something in place of the cash).

But as the employee, your taxable income is lower straight away. You only pay tax on your reduced salary, so the benefit of salary sacrificing appears in your pay throughout the year.

Your employer then claims any relevant deduction. Donations made to DGRs generally don’t trigger a Fringe Benefits Tax (FBT) liability for the employer.

If you still have some questions about your donations and tax, read about the tax benefits of donating.