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What Is Salary Packaging?

Salary Packaging is an arrangement between you and your employer where a portion of your income is deducted before tax and used to pay for your living expenses. This pre-tax deduction reduces your taxable income and results in an increased take-home pay.

Taxation legislation provides significant tax concessions for employees of public hospitals and not-for-profit organisations.

This allows these organisations to employ staff with take-home pay that is competitive to the private sector, without significantly increasing their overall salary budget.

One of these tax concessions is an exemption from Fringe Benefits Tax (FBT).

This means that your employer can pay or reimburse your personal expenses up to an annual capped limit without you paying any tax on this amount. This tax-free amount is in addition to your normal tax-free salary threshold of $18,200 per annum. 

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How It Works

When you salary package, money for your personal living expenses is deducted from your salary before tax is taken out. You only pay tax on the remaining portion of your cash salary (i.e. the amount paid to you by payroll), not the salary packaged money. As a result, the tax deducted from your pay is significantly reduced.

The tax saved each fortnight is a permanent tax saving. You are never taxed on the salary packaged money.

There is a capped limit on how much you can salary package. The salary packaging limits set by the Tax Office per fringe benefit year (1 April to 31 March) is:

  • $9,010 for Public Hospitals
  • $15,900 for Public Benevolent Institutions.

You can also maximise your benefits and tax savings if you start salary packaging mid-way through a fringe benefit year. This is when you salary package your annual capped limit within a shorter period of time. We simply divide your annual capped limit over the number of pays left to the end of the fringe benefit year.

In addition, you can also salary package a further $2,649 per fringe benefit year towards meal entertainment, venue hire and holiday accommodation costs.

Salary Options will ensure you salary package within the Tax Office limits, and will guide you on maximising your salary packaging benefits.

What Expenses Can Be Salary Packaged?

There are various expenses you can choose to salary package. However, it is best to be guided on which expenses are best to package. The following list is the most common expenses:

Capped Limit Expenses:

  • Mortgage or Rent Payments
  • Personal/Other Loans Payments
  • Credit Card Purchases
  • School Fees
  • Other Living Expenses through a Salary Options Living Expenses Card

Above Capped Limit Expenses (limits apply):

  • Meal Entertainment Expenses
  • Holiday Accommodation, Venue Hire, or Cruises

FBT Exempt Expenses:

  • Work Related Laptop Computer, or Portable Electronic Devices
  • Airport Lounge Memberships
  • Remote Area Housing

Concessional FBT Expenses:

  • Superannuation through Salary Sacrifice
  • Novated Leases

Salary Options friendly staff will assist you to create a salary packaging arrangement that will best suit your needs and lifestyle.

 

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Call 1300 660 416 to talk to us about improving your salary packaging program

Tax Time and Other Implications to Consider

The amount you salary package is never subject to PAYG income tax. At the end of each FBT year Salary Options will report to your employer all salary packaging benefits paid to you. Your employer will then note the grossed-up value of your fringe benefits on your Payment Summary.

The grossed-up value of your fringe benefit will be used by the Government to assess Government related surcharges and income tests such as Medicare Levy surcharge, HECS/HELP payments and certain child support payments. Any salary sacrifice to superannuation will also listed on your Payment Summary.

Click here for more information about how salary packaging effects Centrelink paymnets, HELP/HECS, Child Support and Medicare Levy.

The above information provided does not constitute financial or taxation advice. Salary Options recommends that you seek independent financial advice from a qualified Financial Advisor or Accountant.

Salary Options Pty Ltd

Level 5 / 641 Mt Alexander Road
P.O. Box 916
Moonee Ponds VIC 3039
T: 1300 660 416
F: 1300 731 171

The Australian Health Industry Group (AHIG) supports a wide range of businesses in the health, welfare and not for profit sectors by providing a full range of legal, management, education and recruitment services.