Just what is Salary Packaging?
Your mother looks at you, holding some coins in her hand.
‘For every dollar that I give you, you need to give me fifty cents back.’
As she hands over two dollars, you hand back your one dollar tax, before going off to by a forty cent lolly with your left over money, leaving you with sixty cents.
However, what if your mother took the money out for the lolly first, and instead of handing over two dollars, handed over one dollar and sixty cents, as well as the lolly.
As she has only given you a dollar and sixty cents, you hand over eighty cents in tax and are left with ninety cents, as opposed to the sixty cents you would have had originally, saving you thirty cents.
It’s a simplified concept, but in essence this is salary packaging – being able to package your pay in order to pay for items (that you would have paid for anyway) before you pay tax. As a result you are only taxed on the lower gross income, and never have to pay tax on salary packaged income.
How can you benefit?
Salary packaging is a means of restructuring your income which is approved by the Australian Taxation Office. As a business it offers a way to reward your employees with minimum or no cost to you, while for employees it’s a way to maximise your take home pay. A business can raise its value in the eyes of their employees, which has a knock on effect on both the loyalty of your employees and the culture of your workplace. Individually, employees benefit from walking away each week with a little extra money in their pocket.
Who can salary package?
Any employee can salary package, dependant on what the employer is willing to include in their benefits. Most employers can salary sacrifice super, but employees will need to discuss what other options they have.
What can be salary packaged?
Benefits fall into three categories: fringe benefits, exempt benefits and super.
Fringe benefits will appear on your payment summary at the end of the financial year, and your employer may have to pay some tax on these, e.g. cars, health insurance, school fees etc.
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, e.g. portable electronic devices, tools of the trade, briefcase etc
Are there any exceptions?
Unfortunately, employees working under a 457 Visa may not be able to utilise benefits of salary packaging. This is due to the fact that they have a minimum salary requirement that they have to be paid, so reducing this through paying out deductions prior to tax may possibly jeopardise their visa. If you are on a 457 Visa and want to see if you are eligible for salary packaging, discuss it with your sponsor.
Also, if an employee chooses to include a tax deductible item in their salary packaging plan, that item will no longer be eligible for deduction when filling out the tax return.
How can we help?
If you have any questions about how you can salary package your income and whether out MAXpay system can work for you, contact Pendragon Management and we will assist you [email protected]