You could still salary package and save
If you have a HECS/HELP debt, and work in the charity or not for profit sector, salary packaging could still benefit you in three ways:
- Your HECS/HELP debt could be paid off with money that would otherwise be paid to the ATO as tax
- You could pay off your HECS/HELP debt faster
- PLUS, you could enjoy extra disposable income every year
Take a look at an example
Sarah is a charity employee and earns $55,000 a year.
By salary packaging $15,900 towards her rent, Sarah could reduce her taxable income and increase her take home pay by $4,689 a year.
|Potential benefit of salary packaging||No Salary Packaging||Salary Packaging|
|Pre-tax expenses (rent/mortgage)||$0||$15,900|
|Net salary (including fees)||$55,000||$39,100|
|Tax and Medicare Levy||-$9,442||-$4,753|
|Net cash salary||$44,478||$34,063|
|Living expenses (rent/mortgage)||-$15,900||$0|
|Net cash salary (excluding HECS/HELP repayments)||$29,658||$34,347|
|Total benefit from salary packaging||$0||$4,689|
Now that we've seen how salary packaging could help Sarah get more out of her pay, her compulsory HECS/HELP contributions can be recalculated.
Sarah's adjusted HECS/HELP repayment income (HRI) is now $69,100 * and her compulsory ATO contribution is calculated at 5.5%.
Sarah's total annual HECS/HELP repayment is $2,764, which is an increase of $1,664 a year if Sarah wasn't salary packaging.
|Impact of HECS/HELP compulsory repayments||Not Salary Packaging||Salary Packaging|
|Adjusted taxable income||$55,000||$69,100*|
|ATO compulsory contribution||2%||5.5%|
|Total HECS/HELP repayment||$1,100||$2,764|
|Additional HECS/HELP repayments per annum||$0||$1,664|
*In order to calculate your Help Repayment Income (HRI), the packaged amount is multiplied by a gross up factor of 1.8868, e.g: $15,900 x 1.8868 = $30,000 + $39,100 = $69,100. It is assumed that Sarah does not have any reportable super contributions, net investment loss or any exempt foreign employment income during the income tax year.
So, with salary packaging:
Sarah's HECS/HELP repayments become $2,764 which could clear her HECS/HELP debt faster.
But better still, even after making additional HECS/HELP repayments, Sarah could still benefit from salary packaging with an extra $3,025 each year due to the reduction in income tax.
As Sarah's HECS/HELP repayments have increased from $1,100 to $2,764, it is important that Sarah either informs her payroll to deduct an extra $64 a fortnight in tax from her pay or makes a lump sum HECS/HELP repayment of $2,764 in her annual personal tax return, otherwise she may end up with a bill at tax time. The fortnightly deductions assumes that Sarah is working for the full financial year (i.e. 1 July - 30 June).
|Benefit of salary packaging with a HECS/HELP debt||Amount per year|
|Benefits of salary packaging||$3,025|
|Amount compulsory HECS/HELP contributions increase||$1,664|
|Potential estimated savings||$1,361|
ASSUMPTIONS: Estimated annual benefit based on an eligible employee salary packaging the full $15,900 per annum limit. PAYG tax rates effective 1 July 2020 have been used. HELP repayments are based on 2020-2021 HELP repayment thresholds and rates. An average administration fee of $220 is included in the example. The actual administration fee that applies to you may vary depending on your employer and may alter the calculation. Estimated annual benefit based on the assumption that an employee does not have any accumulated Financial Supplement debt. Your benefits will vary depending on your income and personal circumstances. Compulsory HELP repayments commence once your adjusted taxable income reaches $46,620.
IMPORTANT INFORMATION: The information provided is factual information only and is not intended to constitute taxation or financial advice on the relative merits of salary packaging or on any other basis. Benefits and savings will vary depending on personal objectives, financial situation and needs. RemServ recommends obtaining independent financial or taxation advice before making any financial decisions. Eligibility criteria and terms and conditions apply. All salary packaging proposals are subject to the requirements of the employer. Fees and charges apply. RemServ may pay and receive commission or rebates in connection with some services and products it provides or arranges to be provided by third parties.