The Community Business Bureau (CBB) wholly owns The Salary Packaging People (TSPP). Explore the CBB Website to find out additional information on salary packaging and novated leasing and other services.

How does salary packaging work?

Looking for a simple explanation? Salary packaging or salary sacrifice can seem confusing to the uninitiated, but here is a basic breakdown of how it works. When you get paid by your employer, your income comes in two forms. Your pre-tax income is known as your gross pay, and your take-home pay is known as your net pay. If you decide to use salary packaging, you’ll be able to access an amount of your pre-tax income to go towards a range of eligible lifestyle expenses. 

I still don’t understand salary packaging

Fair enough. There are plenty of people out there who press the snooze button as soon as they hear the word ‘tax’. But this is good news. Salary packaging means you pay less tax on your income. How? Let’s say you go to pay a bill. You’ve just been paid, and your tax has been deducted and sent to the tax office. That means the money you use to pay the bill is from your taxed, take-home pay. The beauty of salary packaging is that it lets you access your pre-tax income to pay the bills or expenses of your choice. You nominate what you would like to pay for up to a certain amount, and the bill or expense will be paid before your pay goes into your account. Salary packaging unlocks a part of your gross pay so you can use it to make tax-free payments on living expenses such as mortgage payments, childcare fees, car repayments, insurance, utility bills and much more.

Salary packaging your computer

Who can do salary packaging or salary sacrificing?

It depends on your employer and their Fringe Benefit Tax exemption status. Put in simpler For example, if you work in the hospital and health sector, in education, or for a charity/not-for-profit organisation terms, salary packaging is only offered to employees in specific industries. you can access your pre-tax salary to pay for expenses or devices. 

So how much do you get to spend of these tax-free dollars? Let’s say you’re a nurse working for a hospital. You get a salary packaging allowance of $9,010 per year plus a meal and entertainment allowance of $2,650. How much does that work out to per pay packet? If you are paid fortnightly, and there are 26 fortnights in a year, you’ll get $346.54 per pay – tax free – that you can use towards expenses, and $101.92 per pay to use towards meals and entertainment.

Here’s another example. You’re working for a charity, also known as a Public Benevolent Institution (PBI) and earning $70,000 per year and claiming the tax-free threshold. This means $51,800 of your pay is taxable. PBI employees can access up to $15,900 of their pre-tax salary through salary packaging. 

So, your $51800 taxable income minus $15900 (RFB) = $35,900 taxable income. You’ll also get a meals and entertainment allowance of $2650. This takes your taxable income down even further from $35,900 to $33,250. If you want to dive even deeper into the terminology, your salary packaging amount is also known as your Reportable Fringe Benefit (RFB).

Salary packaging for nurses

But how do I get access to the money?

Technically you don’t get access to the funds. The salary packaged amounts are paid to your nominated expense via your salary packaging provider. Your employer puts the rest into your bank account after they’ve taken the applicable tax. You’ll need to provide them proof of whatever expense you decide to claim. For meals and entertainment, you can get a card pre-loaded with your salary-packaged funds that you can use just like a normal debit card. By using your pre-tax salary through salary packaging, you’ll also pay less tax on your remaining income which means more dollars in your pocket.

How does that mean more dollars in my pocket?

The tax office only takes tax away from your taxable income. Any amount you nominate for salary packaging can’t be touched by the tax office. Because less taxable income will be going into your account after salary packaging amounts are taken out, you will get more of your take-home pay than you would have if your total gross pay was taxed. We know it is confusing, but trust us, you’re better off. It’s also totally legal and approved by the ATO. 

I don’t work in health or for a charity. What else can I do?

Can we interest you in a shiny new car? Novated leasing can be offered by all employers in the private and public sectors. Basically, you can make all of your car repayments – and package your car’s running costs – using a combination of your pre-tax and take-home salary. Novated leases are also available on electric vehicles, so you never have to pay for petrol again. It’s easy to set up and can quickly get you behind the wheel of a brand new car without the need for a car loan (and lots of pesky interest). Novated leases actually save you money over the life of the lease. Read more here.

Does that explain salary packaging?

If you’re still confused, we’re here to help with real people ready to answer your questions. Give us a call at The Salary Packaging People on 03 5229 4200 or send us a message online.