Salary Packaging: Key Facts and Tips

Many Australians are assessing their financial situation, especially with the rising cost of living and the pressure of paying household bills. Now more than ever, maximising take-home pay is vital, and one often overlooked option to do this is salary packaging. Also known as salary sacrifice, salary packaging allows payment of certain expenses using pre-tax dollars, reduces taxable income and increases take-home pay.

What is Salary Packaging?

Salary packaging involves an arrangement between an employer and an employee, where part of the employee's salary is used to cover specific expenses before tax is applied.

Everyday items that can be salary packaged include:

• Rent or mortgage repayments
• Car leasing and running costs
• Superannuation contributions
• Health insurance
• Childcare or school fees
• Laptops or other essential work-related items

The benefits of salary packaging depend on your work sector, your employer's offerings, and the specific expenses you choose for your salary package. Two key areas where salary packaging can be particularly beneficial are electric vehicle leasing and employees working in the non-profit sector.

Salary Packaging for Electric Vehicles

One of the most popular uses of salary packaging is through novated leasing, which allows employees to salary package a car. Thanks to the Australian federal government's Electric Car Discount Policy, employees can now enjoy significant savings when packaging electric vehicles (EVs).

Under this policy, eligible electric and hybrid vehicles are exempt from Fringe Benefits Tax (FBT). This exemption can save workers thousands of dollars over the life of the lease. Additionally, when salary packaging an EV through novated leasing, employees don't have to pay GST on the purchase price or running costs of the vehicle, potentially saving an additional $3,000 to $5,000 a year. With transport being one of the most significant household expenses, salary packaging an electric car can provide much-needed relief for workers looking to reduce their outgoings while contributing to a greener future.

Salary Packaging for Non-Profit Workers

Non-governmental workers can access some of the most generous salary packaging options. Many charities and not-for-profit organisations offer salary packaging for rent, mortgage repayments, and meal and entertainment costs, significantly affecting take-home pay. For instance, a charity worker earning $70,000 annually can package up to $18,500 in everyday expenses such as rent and meal costs. This could add over $5,800 to their annual take-home pay. Similarly, healthcare workers, such as nurses, can have salary packages up to $11,600 in eligible costs, resulting in an extra $3,595 in their pocket each year. Salary packaging allows these workers to make the most of their income to improve their financial well-being.

Top Tips for Salary Packaging Success

Salary packaging can be a powerful tool for boosting take-home pay, but it's essential to approach it strategically. Here are five tips to make the most of salary packaging:

Assess Your Financial Goals: Review your financial goals and tax position at the start of the financial year. Salary packaging can help achieve goals like saving for a home, boosting retirement savings, or managing everyday costs more effectively.

Do Your Research: Understand how salary packaging works by visiting reputable sources like MoneySmart to learn about the benefits and potential limitations.

Speak With Your Employer: Check with your employer or their salary packaging provider to understand what benefits they offer. Each workplace may have different policies and eligible items.

Seek Professional Advice: Consult your accountant or a tax advisor to ensure you maximise salary packaging benefits while complying with tax rules.

Monitor and Adjust: Salary packaging isn't a set-and-forget strategy. Regularly review and adjust your salary package as your financial situation changes to ensure you always get the most out of it.

Contact Ascent Accountants

For further advice on salary packaging, reach out to our accounting team. With planning and professional guidance, salary packaging can help stretch your money further.