Salary Packaging

Salary packaging, also often known as salary sacrificing, is basically a way of legally paying less tax by receiving a portion of your pre-tax income in the form of benefits, including but not limited to devices, cars, super contributions.

The typical way we think about our expenses would be to pay for them once we receive our income and once the tax has been removed from that income. Salary packaging means you can cover some of your expenses like your mortgage, rent or a new car by using your pre-tax income, which may leave you with more disposable income to work with!

Common benefits

The benefits provided in exchange for the packaged amount can cover a vast array of expenses:

Superannuation

Employees may be able to salary sacrifice additional amounts into their super fund every year, within allowable limits. For example, say you earned $70,000 per year before tax, you could opt to put $10,000 of that into Super, and you’ll only pay income tax on that $60,000. Your income would be reduced to 60k, but the benefit is you’re paying less tax, and your super contributions are taxed at 15% rather than the 32.5% average income earners would pay.

Everyday expenses

Some employers will allow you to package household groceries, utility bills and even petrol and other transport costs. Other everyday expenses can include school fees, mortgage or rent payments, as well as other loan and credit card repayments.

Entertainment expenses:

Some employers allow you to package the cost of entertainment and meals.

Holiday and travel costs:

It may be possible to package the cost of your holiday, which can help make travel more affordable.

Cars and vehicles:

many employers allow employees to package through a novated lease to reduce the cost of running vehicles.

It's not possible to claim expenses directly debited from your bank account, like private health insurance. The rules around fringe benefits make salary packaging complicated, so it's important to get expert advice before entering a salary packaging arrangement.

Lesser-known expenses

There is also a range of lesser-known expenses people can claim depending on where they work.

What you can claim depends on your job and industry sector. For instance, special provisions apply to people who work for not-for-profit organisations, and in remote areas, people may be entitled to additional benefits due to their location.

Check what your employer will allow to be packaged, and speak to a financial adviser about the best way to make the most of these benefits.

Things to remember:

The main qualities of salary sacrificing are that it can sometimes sway us into upgrading things that don’t actually need an upgrade. Is it actually worth lowering our salary for a new car if we bought one two years ago? Probably not. Don’t forget these benefits aren’t free, and you are still paying for them.

Be pragmatic! Negative though it may sound, we want to stay afloat if circumstances changed and we lost our job or took a pay cut etc. Will you still be able to make the repayments on that new car if you didn’t have an income? These are things to consider.

Source:

Devine, V. (2021, April 9). Salary Packages - are they worth it? She’s on the money.

Mystate, S. B. (2018, February 11). Is salary sacrifice for you? The Examiner.