How Does Salary Packaging Work?
Salary packaging is an employer-employee arrangement that helps thousands of Australians across a range of industries make the most of their salaries.
What is salary packaging?
Widely seen as the last tax break available to eligible workers, salary packaging – also known as salary sacrificing – allows eligible employees to deduct a raft of everyday expenses from their pre-tax wages.
How does it work?
Salary packaging might seem complicated at first but it’s actually quite simple. We all have expenses – from mortgage or rent payments, childcare to groceries, devices and cars.
Usually, we pay for these things once our payroll department has taken tax out of our salary.
With salary packaging, you can pay for some of these expenses with your pre-tax salary. This could reduce your taxable income and decrease the amount of tax you pay. So, you could end up with more disposable income!
What can be salary packaged / salary sacrificed?
Depending on your employer and the industry or sector you work in, you could be eligible to salary package a range of expenses, including:
- Additional superannuation
- Aged care & disability costs for a loved one
- Car parking
- Child care
- Disability / income protection insurance
- Financial advice
- Health insurance premiums
- Holiday accommodation and venue hire
- Rent and mortgage
- Utility bills
Find out more about these and other industry-specific benefits here.
Am I eligible?
Any employee can opt to salary sacrifice 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 allow additional superannuation contributions but not all organisations will offer salary-packaged cars.
Fringe Benefits Tax (FBT)
Employers are required to pay fringe benefits tax (FBT) on certain salary-packaged benefits provided to employees. These apply to what is known as ‘capped’ benefits under an FBT arrangement. (More about ‘capped’ – as well as ‘uncapped’ and ‘concessionally taxed’ – benefits below).
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.
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:
These are items 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
Some benefits 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 discover how much you could save and how salary sacrificing might impact your pay.
Salary packaging with Maxxia
As one of Australia’s oldest and most trusted salary packaging providers, we know how important workplace benefits are to employees. We offer a range of services aimed at enabling you to make a confident choice about salary packaging, at a minimum effort to you. To find out more about how we could help you to do more with your money, contact us today.
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 general information.
This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.