Salary Packaging: How does it work?
When it comes to employment, salary packaging is a “nice-to-have”. So if your employer offers it as part of your benefits package, you’re in luck: it may help you to save money on a variety of expenses – whether they’re everyday bills such as your mortgage or groceries, a computer or even a car through a novated lease.
But what is salary packaging?
Often referred to as ‘salary sacrificing’, salary packaging is an employee-employer arrangement in which eligible expenses can be paid for with an agreed portion of pre-tax dollars.
The tax part explained
From home payments to childcare, cars to computers, we all have expenses. Usually, we pay for these with our salary after we get taxed.
But with salary packaging, you can use your pre-tax salary to pay for certain expenses. This could reduce your taxable income and boost your ‘disposable income’. It can be a great way to make your money work for you!
What can be salary packaged
It depends on your employer and the industry you're in, but, if you are eligible, you may be able to package items such as:
- Additional superannuation
- Aged care & disability costs for a loved one
- Airport lounge membership
- Car parking
- Child care
- Disability / Income protection insurance
- Financial advice
- Fixed expenses
- Health insurance premiums
- Holiday accommodation and venue hire
Find out more about these and other industry-specific benefits here.
How do I know if I’m eligible?
An employee can opt to use salary-packaging arrangements as long as their employer offers it. Check with your employer to find out if and what they’re salary packaging. For example, it’s common for businesses to offer salary packaging into super, but not all organisations will offer salary-packaged cars.
FBT: a factor
It’s a requirement that employers pay fringe benefits tax (FBT) on salary-packaged benefits provided to employees. Since some of the benefits need to be listed on the employee’s end-of-year payment summaries for tax purposes, they could affect tax considerations and government benefits. Both employees and employers will need to be aware of such considerations as the Medicare levy surcharge, tax offsets, and child support payments. It is recommended that independent financial and tax advice be sought prior to entering into any salary packaging arrangements.
What are capped benefits?
Capped benefits are items that are subject to fringe benefits tax (FBT) – which is a tax employers pay on certain benefits they provide to their employees. But some workers (depending on their employer type) are allowed to package items up to a certain capped amount before they’re liable for the 47% FBT rate currently in place. Eligible health industry workers could package up to $9,010 in capped benefits each year, and charity employees, up to $15,900.
Examples of capped benefits include:
What are uncapped benefits?
These are benefits not subject to FBT (and which health and not-for-profit employees can package in addition to their caps) and include:
- Self-education (provided it’s work-related)
- Work-related expenses
- Professional memberships
- In-house childcare
‘Concessionally taxed’ benefits
Finally, there are some benefits that are partly subject to FBT. These include:
For more information on FBT please click here.
How much could you save?
Try out our salary packaging calculator to find out how much you could save.
RemServ can help make your money work for you
Before entering a salary package arrangement, make sure you’re aware of the tax implications and rules that apply. You should get independent financial and tax advice. Take a look at RemServ’s salary packaging FAQs here for more information.
RemServ are aware of the importance of workplace benefits to employees, and we offer a range of services designed to help make your money work for you. To find out more, contact us today.
Want to find out more? Fill in the contact us form, call us on 1300 30 39 40, or contact us online.
Disclaimer: This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.
