Here’s the simplest explanation you’ll find.
Put very simply, salary packaging turns taxable income into net income. It enables you to access more of your own money to use towards your living expenses
Have you ever looked at your payslip and thought that it’d be so much better if I got paid the gross amount rather than what I get after the tax man has taken his ‘share’? Well, through salary packaging this can be somewhat achieved.
Sounds too good to be true, but it is perfectly legal. Your eligibility to salary package will depend on your industry, but it is most commonly offered in the not-for-profit and public health sectors.
Basically, your pay can be broken down into two parts – what you get before tax, and what you get after tax. As an employee, you can’t access your before tax income. The good news is, your employer can. Better yet, they can help you package your before tax salary into payments for a range of expenses such as bills, a car loan, fuel, entertainment, meals, childcare, holiday accommodation and even insurance.
How does salary packaging save you money?
If you’ve been paid, then you’ve already paid tax on your income. If you then make a repayment or pay a bill, you are paying for it with your taxed income, also known as take-home pay or net income. By making payments with your pre-tax income, your taxable income amount is reduced. As an employee, this can save you thousands of dollars a year in tax. It also helps you budget better, as your dedicated salary packaging payments are immediately taken from your pre-tax pay and paid out towards your nominated expenses.
If you salary package a Novated Lease, the lease and car running costs are deducted from your pay rather than you having to pay for them from your take-home pay. An added bonus with a Novated Lease is that you don’t pay GST on the purchase price of the car and the GST on your running costs are refunded to you by your employer.
What kinds of things can I pay for?
The real question is, what can’t you? Salary packaging benefits can be used to make payments for a large range of necessities. You might be wanting to get ahead on your mortgage or credit card, want to save a bit on those hefty childcare costs, or maybe you’re in the market for a new car. It’s up to you, so take the time and enjoy choosing how you’ll get more out of your own money.
- 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
- Child Care Expenses
- Disability Care Expenses
- Aged Care Expenses
- House & Contents Insurance Premiums
- Higher Education Loan Program (HELP)
- Private Overseas Travel Expenses
- Private Domestic Travel Expenses
- Club Membership
- Meals and Entertainment
- Motor Vehicle Expenses
- Novated Lease
How can you access your salary packaging funds?
Your salary packaging arrangement is technically a non-cash benefit made available through your employer and a salary packaging provider (us). We will help you nominate the expenses and claims that will be deducted from your pre-tax pay before it arrives in your bank account. In other words, let us know how much you want to allocate and we’ll take care of everything. For some benefits such as meals and entertainment, you can have the amount deducted paid onto a salary packaging card for easy and paper free convenience.
Is there a limit?
Depending on your employer’s tax status, there is a cap on how much of your income you can use for salary packaging. The maximum expense amount allowed each Fringe Benefits Tax (FBT) year for not-for-profit organisations is $15,900 or $9,010 for public hospital employees. This is also known as your tax-free cap.
Why doesn’t everyone do it?
The Government have enabled some industries to have a greater benefit from salary packaging than other sectors. On the whole, the objective is to help organisations in the public health, not-for-profit and charity sectors attract and retain staff by enabling them to offer some benefits free of tax.
It gives organisations in these sectors an incentive for onboarding much-needed new staff as cities expand and populations surge.
If you’re in the private sector, you may still be able to take advantage of novated leasing for your car or salary packaging for a work-related device like a phone, tablet or laptop. It depends on your employer as to what is available to you, so don’t be afraid to ask. You can always call or contact us for more detailed information.