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The Salary Packaging Basics You Need to Know

If you’ve heard about salary packaging but you’re not entirely familiar with how it works, this article is for you. We’ve collated our most frequently asked salary packaging questions from employees. We aim to give you an overview of all the salary packaging basics you need to know to understand this employee benefit. It’s all about maximising your earnings and reducing your tax burden. If you’d like to find out more about each FAQ, make sure to click on the provided links below.

What is salary packaging?

The salary packaging basics

At its core, salary packaging is a way to convert a portion of your taxable income into tax-free benefits. By partnering with a salary packaging provider, you can allocate pre-tax earnings to cover various expenses. This means more money in your pocket while covering essential expenses, such as car expenses, health insurance, mortgage, rent, credit card, meals and entertainment, accommodation and even memberships and subscriptions.

Is there a catch?

Not at all! Salary packaging is entirely legitimate and approved by the Australian Taxation Office (ATO). Your employer partners with a salary packaging provider, who is an expert in tax regulations. It’s a risk-free and straightforward process for you with the right provider.

Salary packaging may not work for you because of your personal circumstances. Please be sure to seek the advice of an independent financial expert if you are not sure.

Who’s eligible for salary packaging?

If you work for a not for-profit organisation, public health, or in the charity sector, you’re probably eligible for salary packaging benefits. As long as you pay income tax, and your employer policy allows, you may take advantage of this opportunity.

The tax-saving magic of salary packaging

Here’s how it works… instead of using your take-home pay to cover expenses, you use pre-tax dollars. By doing so, your taxable income decreases, leading to lower income tax payments. This can translate into significant savings, making salary packaging a smart financial move.

What can you salary package?

There is a wide range of options. You can use salary packaging to cover mortgage repayments, rent, living expenses, health insurance, and even a car via a novated lease. The flexibility allows you to choose the benefits that suit your lifestyle best:

  • Mortgage repayments
  • Private Home Rental
  • School and University fees
  • Personal Loan repayments
  • Household and Living Expenses
  • Health Insurance Premiums
  • Credit Card Payments
  • Medical, Dental and Optical Expenses
  • Life Insurance Premiums
  • General Insurance Premiums
  • House and Contents Insurance Premiums
  • Higher Education Loan Program (HELP)
  • Private Overseas Travel Expenses
  • Private Domestic Travel Expenses
  • Airport Lounge Membership
  • Meals and Entertainment
  • Motor Vehicle Expenses
  • Novated Lease

It’s important to note that the specific salary packaging benefits available to you may vary depending on your employer’s policies and the type of not for profit organisation you work for. We recommend consulting with your HR department or a salary packaging provider to explore the options available to you based on your circumstance.

Understanding the limits

While salary packaging is generous, there are limits set by the government. For not for profit employees, the maximum expense amount allowed for each Fringe Benefits Tax (FBT) year is $15,900.

Accessing your salary packaging funds

Claiming your salary packaging benefits is hassle-free. Your employer, in collaboration with the salary packaging provider, will deduct the agreed-upon amount from your pre-tax income. You can also opt for a salary packaging card, which allows you to make payments conveniently without keeping track of receipts.

Changing or suspending your salary packaging arrangement

Life can be unpredictable, and sometimes you might need to change or suspend your salary packaging arrangement. In most cases, this is possible. However, it’s essential to communicate with your employer and the salary packaging provider to ensure a smooth process when making changes.

If you leave your employer, your salary packaging arrangement with them will stop. If you have a novated lease, it will be cancelled, and you’ll need to make lease payments directly. However, you can transfer your novated lease to a new employer.

Still have questions about the salary packaging basics?

If you’re still unsure about the salary packaging basics, we’re here to help with real people ready to answer any of your questions. Give us a call at The Salary Packaging People on 03 5229 4200 or send us a message online.