Salary packaging is a simple way to keep more money from your paycheck. Many people don’t use it because they think it’s only for bosses or too tricky. But salary packaging helps anyone save on taxes and get more cash each payday. It lets you pay for some things before taxes are taken out. This means you pay less tax, and your employer doesn’t spend extra. You end up with more money in your pocket.
The Basic Mechanics of Salary Packaging
Your job gives you a total package: your salary plus things like health insurance or a work car. Salary packaging changes how you get this package. Instead of getting all your money as salary, which gets taxed, you pay for some things before tax. This lowers the amount of money the government taxes.
For example, if you earn $80,000 a year and use $10,000 for things like a car, your taxable income drops to $70,000. You still get $80,000 in value, but you only pay tax on $70,000. The tax you save goes to your bank account. The Australian Tax Office (ATO) says this is okay because some things are taxed less than regular pay.
Common Items That Can Be Packaged
You can package different things, depending on your job. Here are some examples:
- Cars: You can pay for a car lease with money before tax. This is called a novated lease.
- Electronics: You can package laptops, tablets, or phones you use for work.
- Work expenses: Things like job subscriptions or training can be included.
- Health benefits: Some jobs let you package gym memberships if they’re part of a health program.
- Non-profit workers: If you work for a charity or hospital, you might package meal cards or bills like electricity.
What you can package depends on your job and employer. People in hospitals, charities, or government jobs often have more choices than those in private companies.
Real Numbers on Increased Take-Home Pay
How much you save depends on your pay and tax rate. For example, if you earn $90,000 a year and your tax rate is 32.5%, packaging $15,000 for a car or laptop lowers your taxable income to $75,000. Normally, you’d pay $4,875 in tax on that $15,000. With salary packaging, you pay no tax on it. That means you keep an extra $4,875 a year, or about $190 every two weeks.
If you earn more and have a higher tax rate, like 37% or 45%, you save even more. Packaging just $5,000 a year can give you an extra $1,500 to $2,000, depending on your tax rate. It’s like getting more money without asking for a raise.
Fringe Benefits Tax Considerations
Your employer pays a tax called Fringe Benefits Tax (FBT) on packaged items. The FBT rate is 47%, which sounds high. But there are ways to lower it. For example, with a car lease, your employer can claim GST credits on car payments and costs like gas. This cuts the FBT. Some benefits, like those for charity workers, have no FBT up to a limit.
Your employer checks if salary packaging saves you more than it costs them in FBT. Most companies that offer it have worked this out, so it helps both you and them.
Who Benefits Most from Packaging
Salary packaging works best for people who pay higher taxes. Here’s who saves the most:
- Higher earners: If your tax rate is 32.5%, 37%, or 45%, you save a lot.
- Parents: You can package childcare costs, saving 32% to 45% on those bills.
- Non-profit workers: People in hospitals or charities get special tax breaks, so they can package more.
- Regular earners: If you earn $60,000 to $70,000, packaging $5,000 can still save you money, especially for things you already buy.
The best idea is to package things you need, like a car or phone. This turns your normal spending into tax savings.
Administrative Simplicity in Modern Programs
Salary packaging used to mean lots of paperwork. Now it’s very easy. Employers work with companies that do all the hard work. Here’s how it goes:
- Your employer takes the packaged amount from your pay before tax each payday.
- For a car lease, the company handles payments, insurance, and other costs.
- You might get a card for things like meal cards or bills, and it’s paid automatically.
- You get statements to see where your money goes, so you don’t worry about details.
The packaging company does the work, not you or your HR team. This makes it quick and simple.
Why Salary Packaging Is Worth It
Salary packaging helps you stretch your money. By paying for things before tax, you lower your taxable income and keep more cash. For example, a nurse might package $10,000 for meal cards and bills, saving thousands in taxes each year. An office worker might package a car lease and save $200 a month. If your job offers salary packaging, it’s worth a look.
You don’t need to be a tax expert. The packaging company and your employer make it easy. Just ask your HR team or the packaging company what you can do. They’ll tell you what works for your job and pay.
Tips to Get Started
Ready to try salary packaging? Here are easy steps:
- Ask your employer: Find out if they offer salary packaging and what you can include.
- Think about spending: Look at things you already buy, like a car or childcare.
- Talk to the company: The packaging company will explain your options and savings.
- Start small: Packaging $2,000 or $3,000 a year can still help.
- Check every year: Make sure your package fits your needs as they change.
Salary packaging isn’t just for big earners. It’s for anyone who wants to save on taxes and keep more money. By understanding it, you can boost your take-home pay easily.
Disclaimer: This article is for general information only. It is not financial, tax, or legal advice. Salary packaging rules depend on your employer, job type, and Australian Tax Office (ATO) rules. Talk to a financial advisor or your employer’s salary packaging company to know what’s best for you and to follow tax laws. The author and publisher are not responsible for any choices or results from this information. This content follows fair use rules and does not copy protected material. For the latest details, check the ATO website or ask a professional advisor.
