Does Salary Packaging Reduce your Taxable Income?
It’s the burning question – the answer to which is why so many people choose salary packaging as a part of their financial set-up.
Put simply, it’s a ‘yes’. Salary packaging / salary sacrifice is an arrangement whereby you only pay income tax on your reduced salary – that is, the amount left over in your pay packet after your agreed benefit(s) have been deducted.
By way of example, if you’re a health industry worker – a public or private not-for profit hospital, perhaps, or an ambulance service – you may be eligible to package up $9,010 each year. If you’re on a salary of, say, $70,000, your annual take-home pay could potentially increase by nearly $3,000 due to tax being applied to your reduced income. Discover your potential savings with Maxxia’s salary packaging calculator here.
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 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:
Items not subject to FBT (and which health and not-for-profit employees can package in addition to their caps) include:
- Self-education (provided it’s work-related)
- Work-related expenses
- Professional memberships
- In-house childcare
Some benefits are partly subject to FBT. These include:
- Novated leases
- Remote area benefits
For more information on FBT please click here.
Ready to get started? If you’re ready to get going on setting up your salary packaging arrangement, Maxxia has the expertise to help make the process simple. Fill out our online enquiry form today to seek assistance with salary packaging.
[Disclaimer] The ATO requires some of these benefits to be listed on your end-of-year payment summary, and could be used to assess your Medicare levy surcharge, tax offsets, child support payments and other government benefits. You should seek the advice of a financial advisor before entering into a salary packaging arrangement.
This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.