Why Salary Packaging Isn’t as Complicated as You Think
Salary packaging could be the smart way to maximise your disposable income.
It could help reduce your taxable income, with very little effort on your part. So why aren’t more people doing it?
Often they simply think it sounds more complicated than it really is.
We’re here to demystify the process, and help you take advantage of salary packaging’s many benefits.
How does salary packaging work?
In a salary packaging arrangement, you pay for selected expenses from your pre-tax salary, which could increase your disposable income. The remainder of your salary is taxed as normal.
How does salary packaging make a difference?
Let’s see how salary packaging could leave more money in your pocket with the following example:
- Susie earns $60,000 per year. She works for a charitable organisation, and her employer provides a program which allows her to salary package everyday items up to a cap of $15,900 per FBT year.
- She takes advantage of the full amount of these benefits by salary packaging $15,900 (for things such as her groceries, utility bills, child care and a new laptop).
- This $15,900 is taken out of her pre-tax salary, so she’s only taxed on the remaining $44,100 per year, rather than her full $60,000 salary.
- This could leave her up to $5,206 better off each FBT year.
That’s a huge saving for simply paying out of her pre-tax income for things she’d be paying for anyway!
To find out how much you could save by salary packaging, try out this salary packaging calculator.
What can you include in salary packaging?
There are a range of items that are eligible for salary packaging, depending on your industry and your employer’s salary packaging policies. They could range from additional superannuation contributions to rent or mortgage payments, general living expenses to financial advice, and home office expenses to professional memberships.
What are the rules related to salary packaging?
The rules around salary packaging are determined by the ATO.
The ATO specifies that it’s the employee’s responsibility to ensure the proposed salary package is aligned with the requirements associated with the ATO’s rulings and guidelines.
Any salary packaging arrangement has to be prospective. In other words, the arrangement made should be for future payments expected from the employer and cannot be applied to any payments already received.
For example, any accrued annual leave which you may be entitled to is a result of your past employment history, and therefore cannot be part of your salary packaging agreement.
Salary packaging deed
One of the procedures required when entering a salary packaging arrangement with an employer is for the employee to complete a Salary Packaging Deed. This is similar to a consent form where the employee acknowledges and accepts responsibility for their conscious decision to enter into salary packaging arrangements with their employer.
This is nothing to be concerned about – it’s simply used to protect the ATO from any liabilities incurred in the process of allowing salary packaging.
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This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.