Salary packaging reduces your taxable income and so reduces the amount of income tax you pay.
Salary packaging (also known as salary sacrifice) is an arrangement between you and your employer, where the employee agrees to withhold part of their future entitlement to salary or wages in return for the employer providing them with benefits of a similar value. You can salary package computers, cars, childcare and super, to name a few. This can reduce your taxable income and put more money in your pocket.
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Who can salary package
You can salary package if your employer is willing to offer benefits. Most employers will offer salary sacrifice into super to all employees, but may restrict who can package other benefits. Ask your employer what they offer.
Salary packaging is usually more effective for people on mid to high incomes.
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What can be packaged?
There is no restriction on what can be packaged but the benefits fall into three categories: fringe benefits, exempt benefits and super.
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Fringe benefits
Fringe benefits can include:
• Cars
• Health insurance
• Loans (usually for a car)
• School fees
• Childcare fees
• Other personal expenses
The value of the benefits you receive each financial year will appear on your payment summary at tax time. You will not have to pay tax or Medicare levy on this amount.
There are also some benefits such as entertainment and car parking that will not appear on your end of year payment summary. These are called non-reportable fringe benefits.
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Exempt benefits
Exempt fringe benefits are benefits you receive that will not be included in your payment summary. Your employer will not have to pay fringe benefits tax on these.
Exempt benefits include:
• Portable electronic devices
• Computer software
• Protective clothing
• Tools of the trade
• Briefcases
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Super
Redirecting some of your pre-tax income into super has benefits for you and your employer. These salary sacrificed contributions will be taxed by the super fund at 15%, the same as your employer’s contributions. For most people this will be lower than their marginal tax rate.
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For further information on Salary Packaging, or Contractor Management follow the links.
For further information please don’t hesitate to contact us, book an appointment or reach us at [email protected] or 02 9407 8700 where one of our Australian team members will gladly help you.
All information is sourced from the ATO website & the government website – Money Smart
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