What is Salary Packaging?
Salary packaging is where an employer and employee agree that the employee’s remuneration package will be received by way of a combination of cash salary and non-cash benefits. Anyone who is employed, and has approval, is able to salary package and potentially save thousands of dollars each year. Instead of receiving a gross income, on which income tax is payable, employees can choose to take part of their pay in some other form of benefits before income tax is applied. These are known as employer-provided benefits.
How Does Salary Packaging Work?
To illustrate how salary packaging works, here’s an example:
Madison earns $90,000 per year. She works for an orphanage – a charitable institution. People who work in a charity or other not-for-profit organisations can salary package general living expenses of up to $15,900 per fringe benefit tax (FBT) year. Mortgage, petrol and grocery expenses as well as rent and school fees are all classified with the general living expenses category.
So, by salary packaging the maximum $15,900 allowed, Madison could have a total annual tax saving with salary packaging worth $5,485.48 off each FBT year. With this amount, it’s like Madison increased her take-home pay by 10.43%.
Important Note: The calculated amount does not reflect other salary packaging benefits Madison might be entitled to. Also, the amount Madison can salary package depends on the salary packaging policy in her workplace.
If you’re unsure about how to salary sacrifice, you can always speak to your company’s accountant or get in touch with us.
I Want to “Package” My Salary – How to Get Started
We understand that if it’s your first time to try salary packaging, you might be unsure about your next move.
With Easi, it’s very easy (pun intended) to get started with salary sacrificing.
Just let us know what you want to include in your salary packaging arrangement, provide us with the details we need and we can calculate your salary packaging benefits.
Salary Sacrifice Benefits – Is It Worth it?
If your employer is a hospital, charity or other not-for-profit organisation that’s fringe benefits tax (FBT)-exempt, salary sacrifice could be quite beneficial. In general, however, as long as you and your employer are in agreement, you can take advantage of these benefits of salary sacrifice:
- Access certain fringe benefits allowed by some employers, such as superannuation, portable electronic devices (e.g. laptop or mobile phone), home loan or credit card repayments, private health insurance, rent, car parking and school fees, childcare, and tools or work-related essentials.
- Tax benefits when you salary sacrifice into your superannuation.
- Increase your super fund substantially depending on how much you set aside from your weekly pay. The extra money that compounds can result in a substantial final super balance.
Eligibility Criteria for Salary Packaging
To be eligible for salary packaging:
- You must be a permanent full-time employee; or
- A permanent part-time employee; or
- A temporary employee with a contract with at least three months’ duration
Casual employees are usually ineligible for salary packaging, although this is left to the discretion of the Employee Benefits Team depending on your established work patterns.
All eligible employees who want to salary package should enter into an effective salary sacrifice agreement with their employer. If you need help with salary packaging, please get in touch with us to discuss your options.
What You Can Salary Sacrifice
If you’ve ever asked: “what can I salary sacrifice?” here’s a table summarising the different items you can salary sacrifice.
|Fringe Benefits||Exempt Benefits||Superannuation|
||Your employer makes regular superannuation contributions on your behalf as part of your standard salary. But by salary packaging your super, you can use funds from your pre-tax salary to arrange for additional contributions to your superannuation. This can reduce your taxable income and boost your retirement nest egg substantially.
Most people can salary package as much as $25,000 per year (this includes your employer’s 9.5% contribution) without being subjected to any tax penalties.
More details on what you can salary sacrifice
Salary Packaging & Fringe Benefit Tax
Employers are mandated by law to pay fringe benefits tax (FBT) on specific salary sacrifice fringe benefits they provide to employees. These salary-packaged benefits refer to what are called ‘capped’ benefits under an FBT arrangement.
Since some of the benefits are reflected on an employee’s end-of-year payment summary for tax purposes, they could impact tax considerations and government benefits. Thus, both employees and employers should know about things like tax offsets, the Medicare levy surcharge, and child support payments that can all be impacted by these capped benefits.
FBT is imposed on the taxable value of each fringe benefit. These benefits fall into three categories:
- Fully taxable benefits: Majority of fringe benefits are classified under this category. These include mortgage payments, school and club fees, private telephone accounts, etc.
- Concessionally taxed benefits: Certain benefits may be concessionally taxed (i.e. the calculated taxable value results in only a portion of the benefit being taxable). Examples of these are low-interest loans and car benefits.
- Tax-exempt benefits: Benefits that are not included under the definition of ‘fringe benefits’ do not come with an FBT liability. These benefits are FBT-exempt if they are taxable under a different tax legislation (e.g. salaries and wages), or fall under the ‘otherwise deductible rule’ (e.g. income protection insurance).
How Much Can I Salary Sacrifice?
So, if you’re wondering: “how much can I salary sacrifice?” there’s no specific salary sacrifice ceiling amount set when it comes to salary packaging, except if your employer category falls under specific classifications (e.g. you work for a hospital, NGO or charity) according to the Australian Taxation Office (ATO) guidelines.
What you can do is use our online salary sacrifice calculator to calculate your salary packaging benefit. Although it may not provide the exact amount, it will give you a general idea of how beneficial salary sacrificing will be for you.
Better yet, talk to us at Easi so we can help you with your salary packaging calculations.
Salary Package with Easi?
Easi partner with employers and employees to set up and explain salary packaging in easy to understand terms. We then assist the Payroll Department with applying the packaging schedule and provide assistance with managing the deductions for the length of the lease.
What If I’m Already Salary Packaging?
No problem. We guarantee to beat any competitors car salary packaging quote and we’re happy to arrange the packaging component through your employer’s current provider.
Easi will simply issue a ‘Packager Advice’ to the Payroll Department and the employer decides how the payments should be deducted to cover the invoice.
Download and send this completed form to email@example.com