Do you ever wonder how to make a dollar go further? Do you ever think that there must be a better, more tax effective way to structure your pay?
Well, there is, and it is called salary packaging.
With salary packaging, also called salary sacrifice, you and your employer form an agreement where you are still paid the same salary, but instead of you paying all your expenses after you’re taxed, your employer pays for some of those expenses before you’re taxed. Expenses that you would be paying anyway.
This can reduce the amount of tax you lose and make that dollar go further by putting more money in your take home pay. This is all legal and permitted by the ATO.
There is no restriction on what can be packaged, but items like computers, cars, childcare expenses, and superannuation are the most common.
With most things in life that are going to give you more money, there is a catch. Your employer may need to pay fringe benefits tax (FBT) on the benefits provided to you. Some of these benefits may be listed on your end of year payment summary, added together with your salary, and used to assess your Medicare levy surcharge, tax offsets, child support payments and other government benefits.
Just some of the Fringe Benefits that you may be eligible to salary package include:
- Motor Vehicles
- Health insurance
- School fees
- Childcare fees
- Other personal expenses
- Work related expenses like a phone, tablet, or laptop
- Computer software
- Protective clothing
- Tools of the trade
The value of some of these benefits you receive will appear on your payment summary at tax time. These are called reportable fringe benefits, while those benefits for which you would usually claim a tax deduction in your tax return (exempt benefits) are not shown on your payment summary.
The most popular item to salary package is additional superannuation.
Many people like to take advantage of salary packaging superannuation because the tax savings are often quite large. The amount of superannuation that is salary packaged is taxed by your super fund at 15%. This is a lot lower than most people’s marginal tax rate.
For example, if you earn $80,000, your marginal rate is 32.5% so that is a 17.5% tax saving by salary packaging into super!
It is important to make sure that if you are going to salary package into superannuation your employer is still paying you the required, statutory amount of superannuation and they are not counting your salary sacrificed amounts towards their compulsory contribution. Most will do the right thing, but it is important to check your employment agreement to make certain. It is also important to make sure that by salary packaging into superannuation, you are not going to exceed your concessional contributions cap and incur a penalty.
It sounds appealing, so who can do it?
Basically, you can salary package if your employer is willing to offer the benefit to you. Most employers will offer salary sacrifice into super to all employees but may restrict who can package other benefits.
Ask your employer what they offer because what is available to salary package will depend on the industry in which you work and whether your employer is a Not for Profit. Employers will likely have their preferred salary package providers to operate the system on their behalf so organisations such as Maxxia or Smart Salary will work with you and your HR Department to setup your desired salary package. You may even be able to include the fees they charge you as a deduction in your tax return.
Again, it sounds very enticing so what else should you know?
At PTAM we can discuss a proposed salary package with you before you speak to your employer. We can explain how this will impact the amount of tax that you pay and can show you by how much you will be better off through salary packaging. We can even help you put a proposal together ready for a discussion with your employer.
We can discuss the different ways to optimise your proposed strategy by making suggestions on how to tweak what you would like to do to be even more tax effective. We have all the tools and knowledge to ensure that you are getting the best that you can out of your current salary package.
To find out more on how to make every dollar go further, don’t hesitate to give us a call and Join the Conversation…
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