How Does Salary Packaging Work?
Salary packaging can be a great way for employees to do more with their money.
If your employer offers salary packaging as a benefit, explore the different things you might be able to save on, whether it’s a computer or a car.
What is salary packaging?
Also commonly known as salary sacrifice, salary packaging is an agreement between employees and employers used to deduct expenses from your salary before tax.
How does it work?
We all have expenses to pay… From mortgage or rent payments, to childcare, cars or computers. Usually, we pay for these using our income after we are taxed on it.
But with salary packaging, you can use your pre-tax salary to pay for certain expenses. This reduces your taxable income and decreases the amount of income tax you pay. So, you could end up with more money ('take home pay') in your pocket. It can be a great way to make your salary go further and increase your spending money.
What can be salary packaged
You could be eligible to pay for a range of expenses with your pre-tax salary.
The types of expenses you can salary package depend on:
- your employer
- the industry or sector you work in.
You may be able to salary package expenses like:
- 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
Am I eligible?
Any employee can opt to use salary-packaging arrangements as long as their employer is happy with the terms. Check with your organisation to find out what they’re offering for salary packaging. For example, it’s common for businesses to offer salary packaging into super, but not all organisations will offer salary-packaged cars.
Note that salary packaging arrangements are always made before the income is earned. You can’t agree to a salary sacrifice arrangement if you’ve already earned the income.
Fringe benefits tax
Employers are required to 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 things like the Medicare levy surcharge, tax offsets, and child support payments which can all be affected.
How much could you save?
Try out our salary packaging calculator to find out how much you could save and how much more spending money you could access each pay.
Salary packaging with Maxxia
Before entering a salary package arrangement, make sure you’re aware of the tax implications and rules that apply. Take a look at Maxxia’s salary packaging FAQs here for more information.
At Maxxia, we know how important workplace benefits are to employees. We offer a range of services designed to help you make the most of your salary. To find out more about how we can help you with your salary packaging arrangements, contact us today.
This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.