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What is Salary Packaging?
Salary Packaging is a way of restructuring your income to reduce the amount of tax that you pay.
Approved by the Australian Tax Office (ATO), Salary Packaging means you can pay certain expenses out of your salary before you pay tax. This means the tax you pay is calculated on your reduced income after the nominated expenses are paid.
What are the benefits of Salary Packaging?
Salary Packaging enables you to save money when you buy a car through a Novated or Associate Lease. Depending upon your employer and the industry you work in, you may also be able to pay for a range of everyday items or expenses using your pre-tax dollars e.g. your electricity bill, utility accounts, home mortgage or rental repayments and many more.
There can be significant financial benefits when Salary Packaging, however it does depend upon the person’s individual situation and the benefit varies from person to person.
How does Salary Packaging work?
A carefully calculated amount, based on the benefits you are entitled to, is deducted from your taxable income and moved to a trust account (managed by an Administrator). The tax you pay is then assessed on your reduced taxable income after the deduction, lowering the tax you pay.
You initially pay for the expenses up front and are then reimbursed for your selected Salary Packaging items using the funds from your Salary Packaging account.
Depending on your Employers status and the benefits that they offer, the funds can be used to pay for a variety of different expenses such as a Novated Lease, and possibly Rent/Mortgage, Electricity and other costs.
A FAA Specialist will run the calculations and determine the correct amount to be transferred to the Administrator so that you are maximising your Salary Packaging benefits.
Our team of specialists understand that organisations have varying FBT statuses and benefits available, and can assist you to understand what your options are, dependent upon your employer.
Every Organisation holds a FBT (Fringe Benefits Tax) Status which their employees may be able to access for Salary Packaging purposes.
Employers can allow their employees to access various benefits depending on both the company’s status and also their company policy.
Depending on their status, some Organisations (eg: hospitals and charitable companies), can access benefits that are exempt from FBT (Fringe Benefits Tax), these are referred to as an ‘exempt benefit’.
The example below is based on an employee that can access exempt benefits.
On 1 July 2018, the local Hospital employed Jane and Jack. Jane and Jack are both earning $55,000 a year and pay $18,000 per year in rent. Jane then Salary Packaged $9,000 of her gross income towards her rent. Jack did not Salary Package any of his salary.
|Less Salary Packaged Expenses (eg Rent)||$9,000||–|
|Net Pay (per Annum)||$9,000||$18,000|
|Net Disposable Income (per annum)||$29,583||$26,478|
|Net Disposable Income (per week)||$568||$509|
As you can see even though both Jane and Jack earn the same income, Jane has an additional $59 per week or $3,105 per year in her pocket.
What would you be able to do with a $3,105 ‘pay rise’?
There are also benefits for those that cannot access these specific entitlements in the form of Salary Packaging vehicle expenses.
How can we help you?
Contact us today to organise an initial appointment with a Salary Packaging Specialist.
The specialist can provide a free financial assessment and evaluate the impact on your individual circumstances.
We provide a holistic service and can assist you in all areas of your financial life.