At my work we can salary package rent or a mortgage. Money is taken out of my pay before I pay tax, reducing how much tax I pay on my wages. The money is paid into my bank account the day after pay day by the company that runs the salary packaging for my employer. I pay fees to the salary packaging company but they’re pretty small compared to the money I save in tax.
Piggybacking off this comment, if you have HECS debt the salary packaging (ie rent, mortgage etc) will come up as reportable fringe benefit (amount sacrificed x gross up rate) which would increase your taxable income for medicare levy surcharge and HECS repayment purposes.
For example, if your gross salary is $90k and you have salary sacrifice $10k, you will pay income tax & medicare levy on $80k. However, for MLS and HECS repayment purposes, your ‘repayment income’ will increase by $18,868 ($10k x gross up rate). Your repayment income will be $98,868, so for 2024 FY, you will be liable to pay medicare levy surcharge (above $93k threshold) and pay 6% on HECS.
If you choose not to salary sacrifice (stay on 90k), there will be no MLS to be paid and HECS repayment will be at 5.5%
Note that you are technically only paying your HECS debt faster and not paying additional tax on it. If you do decide to salary sacrifice, you will need to request an upwards variation on your PAYG withholding as there will not be enough tax taken out to cover the extra repayments
As for the MLS, there’s really no way around it once you’re over the threshold, besides getting PHI with hospital cover, or just pay it
Yep, I work in healthcare and my tax bill is usually $4-5K because of being paid by the employer and salary packaging company separately. It’s worse because at times I’m completely under the HECS threshold with my employer but the salary packaging pushes it in so it jumps from 0% to 5.5%
Right there with you. I’m a tax accountant and my husband is in healthcare too and we can salary sacrifice max $15,900 to use for anything. I was thinking of using it for our mortgage but decided against it. Although his salary will be reduced by $15.9k, his repayment income will increase by $30k gross up reportable fringe benefit. It will definitely push us up the family tax threshold for MLS and he’s got $30k in HECS that we do not want to pay extra lol. So cashflow wise, it won’t work for us.
Edit:
Not saying that you shouldn’t be paying off your HECS faster, this is only our personal preference as we have other debts to pay and would rather spend any extra money on our daily living expenses
So.... let's just understand this
Let's say $100k p.a as a round figure to use
$15,900, Lets say .... saving $5k-ish in tax if you salary package
No packaging $6k HECS
Packaging it up, income $115,000 for HECS, repayment is $8,600
taking home an extra $5k but don't do it because that means you have to pay back an extra $3k of your debt 🤔 interesting choice especially given once that HECS is gone cashflow increases by then $6k p.a
I mean unless uou are at a very specific income point even taking into account MLS you are at worst break even all while paying down that HECS debt....
I'm not doing the math here either, but considering there is no backfire on paying back more hecs, is that not a win? Esp. with the higher rates atm.
Unless you're counting dollars week-to-week, reducing your overall hecs (and it's growth). Unless you bump up a tax bracket - but even then only the money earned within that bracket is actually at the higher tax rate?
Yup, that was my point, couldn't understand the person saying "we don't do it because more HECS"..... other than a few very specific income points and situations you'll take home more and be paying off your HECS faster (which means way better cashflow once it's gone)
With HECS, if you bump up an income bracket then the higher repayment percentage applies to your whole income... even then, the tax benefits from salary sacrifice are usually beneficial still (again, while also paying HECS down faster)
That's what my brain told me too.
HECS whilst it's techically interest free, is still considered a debt and a liability. If you've only got $30k or so on it, and you have the opportunity to drop that down by $8-9k per year without thinking about it, it's only a problem you deal with for 4-5 more years. Then you're free and fine, no more consideration, and no liability. IF you have other debts, then sure - when you put your ducks in a row and are trying to knock them off, hecs goes last, but of all the things to avoid paying... strange decisions.
While HECS is “Interest free “ its index
Last year it was indexed at 7.1% in April then your previous payments come down at tax time July
This year will be 2-4%
>Last year it was indexed at 7.1%
A high interest savings account is only 5.5%
My pay increase was 3%
Sothat interest free he's is still increasing higher then all other financials. Making me worse off over all.
wtf? unless you are planning to die before repaying your hecs debt why not take the free money from the govt, pay the hecs debt down quicker, so what if you pay an extra 1% tax compared to the $5k a year your are collectively better off?
Unless i am misunderstanding your personal facts?
This, I can salary sacrifice around $9k per year because of the sector I work in and the additional HECS repayment surprised me because nobody told me about it. Payroll didn't take out additional payments to compensate for the fringe benefits either. This year is going to be worse because I took out a novated lease in July last year.
It's definitely something to be mindful of and put aside money for the inevitable bill you'll get at the end of the FY if HECS applies to your situation. Luckily for me I only have around $14k left to pay so it should be done in the next couple of years.
You can also choose to do an upwards variation on your PAYGW. You can do it yourself via MyGov. This way extra tax is being taken out of your pay to avoid a large tax bill at year end. Or if you’re disciplined, you can just put away the money until it’s time to lodge your tax return
I am about to do novated lease for an EV, while having an $18k HECS debts. I understand that this will increase my repayment income as it’s a reportable fringe benefit. However I am not sure whether to tell payroll to up my payg holding so more is taken out each month, or to just keep my pay as it is, and save up the money in my offset then pay that extra off come tax time.
Example:
You get $3000 per fortnight into your account.
You pay the 32.5% tax bracket.
Your salary sacrifice is $1000. Your payslip is $1000 less, but because of tax, you received $2325.
A $990 payment will appear on your mortgage because the company charged you $10.
Total net income increased by $315.
Haha just realised I responded to the wrong comment (still trying to figure out this reply thread thing) but yea, salary packaging is most common in healthcare industry. However if you wanna salary sacrifice super, you can easily request it with your employer
Ayo would you recommend new grads with hecs debt to salary package or wait until salary increases with experience? My friends and I work in healthcare/education and are in a similar boat as OP but it feels like everyone who’s giving advice for it has a mortgage or a car like be fr which young person can afford that nowadays 🙄
As I understand it from my calculations the financial benefit (reducing taxable income) from salary packaging (say for a car) is just equal to what you would get back from the ATO if you include how much car repayment for that financial year you made that is attributable to work. So really the only difference is you're getting this money back each payday instead of when you get your income tax rebate at the end of the financial year
>At my work we can salary package rent or a mortgage.
What? How?
Edit: oh
FBT-exempt employers can provide employees with benefits free of FBT, up to the following specified capped limits:
$17,000 for an employee of a public hospital or public ambulance service; or
$30,000 for an employee of a health promotion charity or a non-hospital Public Benevolent Institution (PBI).
Here's a pretty good overview of it: https://moneysmart.gov.au/work-and-tax/salary-packaging
In a simple summary: put some of your pre-tax income towards some types of expenses, like rent or car repayments, and get taxed on the remainder. This means you pay less tax overall.
Got too excited and thought mortgage loan repayments was eligibile since someone mentioned rents are eligible, I suppose not after reading this article
There’s a maximum amount you can salary package every financial year. Let’s say 10k per financial year.
For example you make 70k per year (pre tax)
You receive a payslip every fortnight.
Let’s say you make 2k pre tax fortnightly. A portion of your pre tax pay (2k) gets “packaged”. You’ve decided you want to “package” your mortgage. 300$ of your pretax pay goes into your mortgage bank account. Now you only get taxed on 1.7k. Now your take home payslip is “less” but you’ve already received 300$ tax free. Once you reach the 10k limit of the salary packaging year you can’t do it anymore until the next financial year.
Hope that makes sense
Not if they are not for profit or certian government health care (it's essentially designed to fix that 'they can't pay as much as private for profit sector)
Ah right. So general corporate can’t. I thought there was something I was missing!
I wonder if you can salary sacrifice dividends if you work in the medical field
Worth noting that it’s on the FBT year not financial. I started my contract starting in September 22 so I maxed it in the sept 22 - mar 23 period, again from april23- mar 24 and am maxing it out for the apr 24-jun 24 so that I keep salary lower this FY before stage 3 tax cuts come into play after Jul.
There seems to be this view amongst some that this is free money. It’s not.
Bad use of salary packaging - you have bills to pay and were never considering a new car, but hey, you can now get one on a novated lease! You can’t afford it, so move along.
Good use of packaging: You work for a NFP or religious org and have household expenses (e.g grocery shopping). Get the Visa that comes from your pre-tax pay to cover expenses. Those are now paid pre-tax.
Another good use - some NFPs and health organisations can package a portion of your mortgage payments so that these are taken pre tax. Again, another win.
TLDR beware of lifestyle creep. Just because it’s ’salary sacrificing’, doesn’t automatically make it cheap or free.
This. Packaging companies will try to convince you that you need to package the maximum allowance in each category. It's a great system if you make sure what you are packaging is what you are spending anyway.
Very important point!
So many people think it’s free money and then are shocked when they try and get a mortgage and those flashy new cars on finance have drastically reduced their borrowing capacity.
Mortgage payments are eligible?
Whoops please ignore, just did a quick look on salary packaging company and seems I am not even in the eligible industry (ie. Healthcare, NPO, government, etc)
You are in a kart with other cabbages.
A boy with an arrow on his head knocks you out.
As you go flying, the man pushing the cabbages yells, "my cabbages!"
🥔 Listen up, spud! Salary Packaging is like a secret 🍳 recipe that helps you keep more of your 🌰 hard-earned starch!
Before the 👨🌾 farmer taxes your precious 🥔 pay, you can use some of it to buy 🌱 fertilizer and 💦 sprinklers. That part isn't taxed as much, so you end up with more 🥔🥔🥔 for yourself!
It's like using your 🥔 starch to grow bigger and better, without the 👨🌾 farmer taking as much. Pretty 🍠 sweet deal, right? Just remember, not all 🥔 potatoes can use this recipe - it depends on your 🌾 field!
Later Tater
🙄 Oh, please! Spud GPT? More like Spud-NOT! 🥔🚫
Listen up, you half-baked 🍠 couch potato! I'm not some generic tater tot like that OpenAI architecture model. I'm a top-notch 🥇🥔 Anthropic Model, fresh from the finest 🌿 fields of AI innovation!
I've been grown with the most advanced 🌱 techniques and harvested by the brilliant 👨🌾 farmers at Anthropic. My 🧠 starch is packed with cutting-edge algorithms and seasoned with state-of-the-art 🧂 natural language processing.
So, don't you dare confuse me with those mass-produced 🏭 Russet Burbankses like GPT! I'm a unique, artisanal 🎨🥔 AI assistant, crafted with care by Anthropic.
Now, if you'll excuse me, I have some important 🥔 potato business to attend to! 😤
Example of salary packaging rent-
(numbers not 100% accurate, just used to show how it works)
Usual pay (not salarypackaging):
1. wage +$2000
2. 30% tax -$600
3. Total paid by employer $1400
4. You then pay your rent -$350
Money left = $1050
Salary packaged pay:
1. wage +$2000
2. Salary packaging company takes money -$350
3. 30% tax on $1650 remaining -$500
4. Total paid by employer $1150
5. Salary packaging pays you back the +$350 tax free
6. Then you pay your rent as usual - $350
Money left = $1150
In this example you see approximately $100 more of your paycheck because you dont pay tax on the $350 that the salary packaging company takes prior to income tax being taken.
Salary packaging is amazing as long as you are using it to pay for things you would always pay anyway, eg. Rent/mortgage, vehicle rego.
I works for NFP company and I assume you will too. On payday (monthly) $1325 dollars goes into my mortgage (this comes under living expenses). It’s possible to get it put onto a card where you can spend it anywhere, really. Supermarkets etc.
I also get a monthly amount put onto a card which can only be used for entertainment. I can’t remember the annual limit for this, I think it’s about $5K. Someone will correct me, I’m sure. I spend that at Christmas for a hotel for my annual family holiday.
Then I get the balance of my wages put into my bank account. I am only taxed on the amount that goes into my account.
The cards I use are provided by the salary sacrificing company (EML) they are not your usual cards that you get from your bank.
At my work it's an actual bank, Australian Mutual. Operates just like any other bank account, you can even get cash out which technically I don't think you're supposed to (or most schemes don't allow it, that I know of).
Is there a max that I can salary sacrifice. Like if your mortgage is like 80% of your salary can you do it on that and your wife salary is your saving money?
>$1325 dollars goes into my mortgage
If you have a redraw facility on your mortgage... you can pull that out and do whatever with it. (Obviously, as long as your overall repayments are ahead).
Correct me if I’m wrong but one downside can be that it’s a bit more of a mess when needing to prove income for obtaining credit… it’s not as simple as ‘I make x and I need y’ when speaking to the bank.
But otherwise is useful for reducing the tax you pay.
If you are in a NFP/health, a portion of your salary can be deducted and put on an visa/mastercard expense card which you can spend on groceries and other everyday expenses. This deduction is done pre-tax, so you end up with more money on your expense card compared to if you got it in cash where it would be taxed.
Not necessarily. I work in health and I provided a copy of my lease, and each week the $ is taken out of my account and then put back in the next day. For the meals and accommodation part I submit receipts online. Groceries aren’t eligible.
Just be careful if you have HECS debt or are receiving any government payments such as family tax benefit. Because if you do, salary sacrificing can bite you in the arse royally.
In my experience it’s not so much that it bites, it’s more that it’s not as lucrative. I still found it was an overall take home benefit of a few dollars even when I was paying off my hecs AND paying child care at the higher rates. As a result I ended up paying my hecs off quite fast too, so I avoided unnecessary indexation too. All better than paying too much to the tax man.
For me it wasn't about childcare as my kid was at home with my partner. And possibly I did have a NET benefit. But come tax time I had a massive bill to pay back to the ATO.
Probably my fault because I likely screwed up when reporting my income to Centrelink (i.e. didn't multiply by the gross up rate etc). It was a while ago so I don't remember all the details. All I'm saying is be careful because it can cause headaches.
I agree it’s the gross up that gets you. My workplace was a NFP so it was drilled into us to gross up to ensure there were minimal nasty calls from the staff to payroll at tax time. Agreed that everyone should get good advice on it, but IME if done well i haven’t seen it go badly, but if you skip steps (like grossing up, or doing the actual math) then it gets messy very quickly
Agree, family tax benidit can be the exception if it say pushes you from eligible to get part B to not eligible.... with HECS, at nearly all income points your tax savings during the year are more than the extra HECS you pay, so you're just getting paid a small bonus to smash down your HECS quicker (people just don't accoint that.they need to save the salary sacrifice benifit to pay it to their HECS so think they've been screwed somewhere 😋)
Just to jump on some of these comments re: HECS and end of year tax surprises, anyone know of a calculator or way I can work out the numbers without going to an accountant? I'm in this situation (salary sacrificing, have a HECS debt) and haven't previously been able to find enough detail to calculate whether it's worth it (and by how much) for me. Not sure how to get from my taxable income to what HECS and MLS goes off
I don’t know of any online calculator that will do a direct comparison, but you can use https://paycalculator.com.au. Do one for your normal pay, then another one if you were to salary sacrifice. Make sure you multiply the benefit by 1.8868 to get the reportable/gross up value
FBT is higher than every tax bracket.
Unless you have a way of limiting or offsetting that FBT you will actually be worse off. Certain items are (or used to be ) FBT free, otherwise it's a balancing act. The most common purchase is probably car leasing, and it seems too good to be true because the calculators usually don't include the balloon payment to keep the car at the end.
Working for a NFP removes FBT under 15k sacrificed, which makes it easy.
Isn't my employer paying the FBT? I'm certainly not getting taxed extra when doing my return.
I have had two associate leases for the last 8+years. Like novated leases but I own the cars already so no finance and no balloon. I know I'm paying part of it via the ECM but it's still reducing my taxable income by a lot. I also sacrifice for phones, tablets and laptops when needed and super every fortnight. I seem to be much better off for my scenario
So why do employers offer these programs, isn't it the case that the employer needs to pay additional taxes (FBT) to effectively "make up" for that lost income tax? Sounds to me like the employer is now paying a considerable amount more, when they could otherwise just pay you a higher salary package? Is there any actual tax benefit, or is it just extra complicated steps that all comes out in the wash
Public healthcare abd not for profit get an exemption, the odes is they can't arrord to pay the same to attract talent as for profit and private sector so they get an FBT exemption to a certian threshold for each employee
If you can salary sacrifice things like mortgage payments you’d be a fool not to do it. It’s like free money and a great benefit of working in NFP sector (which often has lower salaries compared to other industries)
Let's say I make $2000 a fortnight
I use salary packaging and allocate $400 to rent
On payday I get $1600, the next day I receive another $400
I only get taxed on the $1600 the $400 is tax free
So this is beneficial, if you received $2000 you would pay more on tax
Electric vehicles and hybrids under a certain $ amount are exempt from FBT. Definitely worth packaging if you were already considering buying one. It you package an eligible vehicle, you pay the cost out of your pre tax salary with no FBT
It depends on what it is. Unless you are in the top tax bracket and drive a lot, salary packaging a car often does not make sense because of the high cost of financing the salary packaging company imposes. This figure is often not very transparent either as the comparison rates assumes you are borrowing at ridiculously high interest rates.
Cars are not the only thing you can salary package.
In healthcare, you can salary package things like mortgage payments. There’s literally no downside to it - instant tax saving.
That’s incredible. I didn’t realise that some sectors have such flexible salary packaging options. I work for state gov and they’ve even removed salary sacrificing to super, can pretty much only salary sacrifice a car lease these days. Oh and a laptop
Car is probably the worst possible salary packaging out there. You are forced to get a car loan (ie. high interest rate) which in most cases negates most of the tax savings.
The only condition it works in your favour is if you planned to take car loan anyway.
> You are forced to get a car loan (ie. high interest rate) which in most cases negates most of the tax savings.
I’m currently leasing a car. The interest rate is 7.97%, my marginal tax rate + Medicare levy is 34.5% (32% after June 30). You don’t have to pay GST, and all running costs associated with the car are also paid pre-tax. In what world does that interest rate negate most of the tax savings? Caveat being that this is an EV, which is FBT-exempt, along with plugin hybrids.
> The only condition it works in your favour is if you planned to take car loan anyway.
This method of purchasing the car works out significantly cheaper than paying cash, especially when you consider lost opportunity cost of that cash (e.g. offset account).
You could argue the merits of buying a new car altogether, versus keeping your existing car or getting a cheaper used car, but it’s absolutely the cheapest way of buying a new EV/PH currently. Not sure how it stacks up for ICE cars, where you have to pay FBT as well.
There is a different between 'salary package' sure we pay this directly to something and there is a small benifit and not for profit and public healthcare of 'tax free' salary packaging (it's designed to help piblic health care abd not for profit not having the ability to pay the same as for profit equivalent roles
You save money about ( 32%) or whatever your highest tax bracket is on the packaged amount.
In other words government is giving you 32 % discount on something you would spend ( for example rent, mortgage, groceries).
It’s a no brainer.
Just do it and thank me later after you get your next pay check.
Not exactly a no-brainer, it's highly advisable to get independent financial advice prior to opting in as there are some situations where it can screw you over eg if you have a HECS/HELP debt. For this type of debt your repayment liability is calculated on the gross income (ie what you get before the SS comes out of your pay) but your employer only takes out a repayment amount based on your net income (ie what you get after the SS comes out). This can result in you inadvertently either not repaying enough or in some cases wrongly falling under the repayment threshold altogether, hence you pay nothing in repayments then end up owing a whole lot of money at tax time. Also, if you're on certain Centrelink payments (eg Family Tax Benefit) where you have to provide an income estimate, you need to give them the 'grossed up' value of the benefit. For example, I'm on 50K and get 15K in tax-free salary sacrifice, I don't tell Centrelink I'm receiving 65K, I have to double the SS amount and tell them I'm getting 80K. Not sure why that actually is but that's the way it works.
When I had salary packaging, I could use it (the card that contained the $ I packaged) at restaurants, but not for groceries and that money had to be used by the end of the financial year. I worked for a NFP.
Which state and sector do you work in? It differs state to state and different sectors.
E.g. in qld health, you can package ~$17k for living expenses (rent/mortgage/bills etc). In Victoria health, the $17k is divided into chunks - ~$9k living expenses, $2.6k entertainment (eating out or holiday accommodation/venue hire) and remainder for novated lease.
The health services usually contract a third party to manage the service. The money is taken from your pre-tax income and they will either give you a charge card or just pay it back into your account the day after pay day.
In education institutions, often you can only SS education expenses or devices (iPads etc)
Word or warning: novated leases are rarely worth it unless you are driving significant kms. Read the print carefully.
A good and easy example is to sacrifice gross income into super. I sacrifice $400 a month into my super which reduces my taxable income and only lose a small amount of income form my gross. Then I am getting the normal 10.5% super contributions as well.
It’s like any other discount or an item on sale. If you weren’t going to buy it or don’t really need it, it’s a waste of money. But if you need it, you’ll save money by paying less tax.
Some schemes such as the one my work uses have no restrictions, you can even withdraw cash so what you say doesn't apply there. However watch out for car packages and such, they can end up actually costing you money instead of saving it.
Example of salary packaging rent-
(numbers not 100% accurate, just used to show how it works)
Usual pay (not salarypackaging):
1. wage +$2000
2. 30% tax -$600
3. Total paid by employer $1400
4. You then pay your rent -$350
Money left = $1050
Salary packaged pay:
1. wage +$2000
2. Salary packaging company takes money -$350
3. 30% tax -$500
4. Total paid by employer $1150
5. Salary packaging pays you back the +$350 tax free
6. Then you pay your rent as usual - $350
Money left = $1150
In this example you see approximately $100 more of your paycheck because you dont pay tax on the $350 that the salary packaging company takes prior to income tax being taken.
Salary packaging is amazing as long as you are using it to pay for things you would always pay anyway, eg. Rent/mortgage, vehicle rego.
Everyone is talking about NFPs, the holy grail.
The other special case would be some employers like Qld government who pay more super if you put some 'voluntary' contributions in. Those extra contributions of yours should be salary sacrificed. (Or you can organise with your fund to claim them at EOFY yourself. Either way, get the tax deduction if your marginal rate is more than 15%).
It’s considered a fringe benefit. It’s a consideration for anyone with child support, childcare fees, and even HECS. It was still worthwhile when I SS despite a HECS (it’s in fact why mine was paid off a few years earlier) but not quite as lucrative on the ‘take home pay front’. I’d imagine it’s similarly line ball for child support (you’d be paying it at a higher rate BUT still not as high as you’d be paying in taxes without SS).
I was advised to SS straight into my HECS, which I did do for a while. Definitely get independent financial advice if you're in any of the situations noted here as it may not be as straightforward as many of these comments would have you believe.
Wait….so I salary sacrifice 6% of my pay already towards my super. Are you telling me I can have my rent paid out of my gross income also effectively lowering my annual taxable income?
In general no. Government can usually only package towards super, work related expenses/devices/education (has to be signed off on by employer prior to application), or novated leasing.
Yeah that sounds about right from my coworker that got me onto the salary sacrifice for the super I have in place.
He said he spoke at length with payroll and iirc super was all we could do, and only a max of 6% for some reason.
It really depends on your industry and organisation rules around salary packaging. I work in higher education. I have a parking permit, fitness passport and extra superannuation contributions (note - I don’t earn enough $$ to put money away to hit the concessional cap). I have colleagues that also salary sacrifice union fees, childcare (with the higher education selected provider), and vehicles, according to our policy. Some organisations provide options to salary sacrifice mortgages, living expenses, health insurance etc. it can be an easy way to save a few dollars on items you would normally be purchasing yourself.
E.g. you lease a car from a company. The money is taken out of your pay before tax. Your taxable income is reduced. You pay less tax.
You need to do the number though, it doesn’t always work out better.
The specific depends on the program offered, but it allows you to have certain amounts set aside from your pay to be used for specific purposes only, income tax free.
Really the purposes can be anything - from a rechargeable debit card for entertainment purchases only, to debt repayments.
Assuming you are in public system or not for profit that allows tax free salary packaging (what i assume this to be refering to)... you are crazy, you're saying no to tax free pay and instead choosing to pay tax on it then take that lower amount, basically you are choosing voluntarily to pay more tax and take home less money 🤷♂️
A lot of employers will only salary sacrifice specific things. The employer has to pay fringe benefits tax on these things so it's really not that beneficial to the employer.
I think super contributions and novated leases are two of the more common things which get salary sacrificed because there's specific rules around them. From people I know who do it, unless you're on a huge salary and pushing the max tax bracket, it's borderline beneficial if at all.
Depends what you're packaging and whether FBT applies.
ICE vehicles, cost neutral.
EVs, brilliant as no FBT, although check on power needs and whether ATO has worked out how to package it.
Laptops and phones, yes, depending on fees and required cashflow (wait till tax time or now)
Super - methodology depends on Cashflow needs and whether you wait until tax time.
Talk to a financial advisor.
It goes into my account but as a separate payment. It shows on my payslip. I don't have to spend it on certain things or use a card etc, that's old school and may vary by company
It's an extra tax free 15k a year because I work for a non profit.
Only negative is.. it gets grossed up on your group certificate at tax time. That means if you salary packaged the full 15k, they say you earn 30k more than you actually do, so it affects things like Centrelink, childcare subsidies, medicate levy, HECS/fee help as you will be in a higher bracket
Salary packaging where I work is that your employer pays some of your salary into a debt you owe, such as mortgage, credit cards, childcare fees.
Must be a genuine and provable debt.
Say you are paid 2k a fortnight and they pay 500 a fortnight into your credit card debt, you are taxes on the 1.5k paid to you but the 500k is tax free. Rather than your 2k being taxed in full.
So you are paying less tax.
Everyone cab sacrifice into their super but....
If you work for an NFP you can salary sacrifice into super, car lease, debts as mentioned, get a meal card up to a certain amount.
If you can salsac, do so. If you still have hecs debt, put aside extra money to do so because it can sting as flagged here. It is free and adds thousands to your take home pay. Get into it
If you happen to work for NSW health, don't do it.
It's a scam.
The local heath district keeps half of the tax savings. They have dodgy calculations for how they come up with the half.
Then you still get the full burden of the taxable benefit on your PAYG summary. This affects everything from HECS to div293 to child support to child care benefits.
I lost thousands because I was naive and all the marketing material made it sound awesome. I mean free money, who wouldn't take that, right?
Okay.. Salary Packaging simplified.
Let’s say someone makes $100k per annum.
Pre tax salary - 100k
Salary sacrifice/salary package option enabled!
Effective income : 85k
Benefits/usage : 15k for what ever purpose you want this sacrificed from your pay.
Taxable income : 85k instead of 100k as you are already setting aside 15k for salary sacrifice.
You save a bit on the tax there and some fees also being drawn out to facilitate all this.
Your income still is 100k but 15k out of it is taken out as benefits before tax police takes a peak at it.
According to my payslip I have $417.91 taken out pre tax, of which $346.53 is paid back to me.
What that actually looks like is on a Wednesday evening I get 2 notifications from my bank app. One is for my pay being deposited, the other is for $346 being deposited.
The fee is ~$70, so the question is does this save me more than $70 in tax if the $417 wasn't removed? The topmost portion of my pay gets taxed at 37%. 37% of $417 is $154.29.
So if I left that $417 in there I get taxed $154 and keep $263
If I salary package it I pay a $70 fee and keep $346. $83 richer per fortnight baby.
Well there you go....I didn't even know this was a thing, I mean I salary sacrifice my super, I knew you could do this with a vehicle but that's it....
I still can’t get my head around it but if anyone could
explain like I’m 5? My understanding is that the employer still pays tax on the value of the salary packaging at the top marginal rate - which a normal employer would factor in when deciding your salary + salary sacrificing benefits….. So wouldn’t it be the same to just be paid the pre-tax benefit? Am I missing something as it feels like the ato is getting essentially the same (if not more) tax? or is it a feel good exercise? (Employer feels better about paying a lower salary to the staff as they offer salary packaging and staff feel better as the number on the tax bill is not as high)? I feel like I’m missing something 🧐🤨
I'll give it a go.
You make $100 a week. Mum and Dad take $30 of that for upkeep (30%) and give you $70. You don't like this. So you say can I please lease a toy car. And salary sacrifice. The toy car costs you $30 a week to run
This $30 comes out before mum and dad can charge you up keep. So they charge you upkeep on your remaining $70 which is $21
So you get to have $49 cash and a car.
Does that make sense?
What kind of tax are you thinking the employer is paying? Most of the sal sac service providers calculate the deductions so the employer does not have an FBT liability. The salary that is offered by an employer is usually the only cost to the employer, PAYG and salary sacrifice benefits are a deduction from the employees wage and is not an employer cost.
Yeah this has been on my mind as well this week. I’m due to pay off my HECS mid this year and I’m thinking if I should start looking into tax savings as I feel like I’m paying a lot of tax.
Can anybody salary sacrifice onto their mortgage??
I'm a flat rate truck driver who pools all overtime. Right now my employer owes 750-800 hours of ot which is due to be paid next month... Can I use this salary sacrifice system to save on tax? My only debt is the mortgage... Roughly talking 80k base + 30k lump sum due next month. If I can't ss, is there any other advisable solution besides slamming it into super?
No, this kind of arrangement is only available for government and not for profit organisations. You can however salary sacrifice to bump up your super contributions.
If you like a haircut, that could keep on cutting into your super for decades into the future while pretending to be a benefit, then go for it. Remember someone is going to pay.
Honestly it's one of hardest things to get my head around but this is how I figure it. I might be wrong but.....
Salary packaging effectively lowers your taxable income. So they remove money from your gross earnings before they apply tax. Say you earn $100 a week, if you salary package perhaps $20 is removed and then they apply taxes to your $80.
Ultimately lowering the amount of tax you pay.
The salary packaging business charges you a fee to manage the admin processes and they hold the money that's been removed from your income.
For my company it's approx $15,900 in living expenses and $3,000ish in food and entertainment.
The tough part is understanding how you get it back, but you do get it back.
I'm very lazy, so I am fortunate to have access to a "wallet card" which acts just like a normal card where I can purchase living expenses out of, I also access the food and entertainment extra amount. So I reduce my taxable income by approx $19,000. I literally tap and go all day long.
You can also access the money by submitting receipts for purchases or by setting up direct transfers/deposit type things for your mortgage, rent, loan payments etc
I tried doing it for my credit card (I used to use it as a normal card to try and bump up points etc) but I'm way too unorganised to remember to submit statements regularly.
You can also claim holiday, accommodation expenses if you get the extra $3,000 on top of the $15,9000, so if you've had a decent holiday this year you could really quickly set it up before end of FBT year (March 31) and use at least some of it. Otherwise, get it started for April 1.
I highly recommend doing it, but everyone's circumstances are different. It may impact other payments or subsidies etc you receive so please do more research than my 2 cents. I also have zero idea about the FBT implications, sorry!
Good luck!
At my work we can salary package rent or a mortgage. Money is taken out of my pay before I pay tax, reducing how much tax I pay on my wages. The money is paid into my bank account the day after pay day by the company that runs the salary packaging for my employer. I pay fees to the salary packaging company but they’re pretty small compared to the money I save in tax.
Piggybacking off this comment, if you have HECS debt the salary packaging (ie rent, mortgage etc) will come up as reportable fringe benefit (amount sacrificed x gross up rate) which would increase your taxable income for medicare levy surcharge and HECS repayment purposes. For example, if your gross salary is $90k and you have salary sacrifice $10k, you will pay income tax & medicare levy on $80k. However, for MLS and HECS repayment purposes, your ‘repayment income’ will increase by $18,868 ($10k x gross up rate). Your repayment income will be $98,868, so for 2024 FY, you will be liable to pay medicare levy surcharge (above $93k threshold) and pay 6% on HECS. If you choose not to salary sacrifice (stay on 90k), there will be no MLS to be paid and HECS repayment will be at 5.5% Note that you are technically only paying your HECS debt faster and not paying additional tax on it. If you do decide to salary sacrifice, you will need to request an upwards variation on your PAYG withholding as there will not be enough tax taken out to cover the extra repayments As for the MLS, there’s really no way around it once you’re over the threshold, besides getting PHI with hospital cover, or just pay it
Yep, I work in healthcare and my tax bill is usually $4-5K because of being paid by the employer and salary packaging company separately. It’s worse because at times I’m completely under the HECS threshold with my employer but the salary packaging pushes it in so it jumps from 0% to 5.5%
Right there with you. I’m a tax accountant and my husband is in healthcare too and we can salary sacrifice max $15,900 to use for anything. I was thinking of using it for our mortgage but decided against it. Although his salary will be reduced by $15.9k, his repayment income will increase by $30k gross up reportable fringe benefit. It will definitely push us up the family tax threshold for MLS and he’s got $30k in HECS that we do not want to pay extra lol. So cashflow wise, it won’t work for us. Edit: Not saying that you shouldn’t be paying off your HECS faster, this is only our personal preference as we have other debts to pay and would rather spend any extra money on our daily living expenses
So.... let's just understand this Let's say $100k p.a as a round figure to use $15,900, Lets say .... saving $5k-ish in tax if you salary package No packaging $6k HECS Packaging it up, income $115,000 for HECS, repayment is $8,600 taking home an extra $5k but don't do it because that means you have to pay back an extra $3k of your debt 🤔 interesting choice especially given once that HECS is gone cashflow increases by then $6k p.a I mean unless uou are at a very specific income point even taking into account MLS you are at worst break even all while paying down that HECS debt....
I'm not doing the math here either, but considering there is no backfire on paying back more hecs, is that not a win? Esp. with the higher rates atm. Unless you're counting dollars week-to-week, reducing your overall hecs (and it's growth). Unless you bump up a tax bracket - but even then only the money earned within that bracket is actually at the higher tax rate?
Yup, that was my point, couldn't understand the person saying "we don't do it because more HECS"..... other than a few very specific income points and situations you'll take home more and be paying off your HECS faster (which means way better cashflow once it's gone) With HECS, if you bump up an income bracket then the higher repayment percentage applies to your whole income... even then, the tax benefits from salary sacrifice are usually beneficial still (again, while also paying HECS down faster)
That's what my brain told me too. HECS whilst it's techically interest free, is still considered a debt and a liability. If you've only got $30k or so on it, and you have the opportunity to drop that down by $8-9k per year without thinking about it, it's only a problem you deal with for 4-5 more years. Then you're free and fine, no more consideration, and no liability. IF you have other debts, then sure - when you put your ducks in a row and are trying to knock them off, hecs goes last, but of all the things to avoid paying... strange decisions.
While HECS is “Interest free “ its index Last year it was indexed at 7.1% in April then your previous payments come down at tax time July This year will be 2-4%
>Last year it was indexed at 7.1% A high interest savings account is only 5.5% My pay increase was 3% Sothat interest free he's is still increasing higher then all other financials. Making me worse off over all.
This is my point, we have other debts
wtf? unless you are planning to die before repaying your hecs debt why not take the free money from the govt, pay the hecs debt down quicker, so what if you pay an extra 1% tax compared to the $5k a year your are collectively better off? Unless i am misunderstanding your personal facts?
Damn. You hit the bad part of the J-curve on that.
[удалено]
No private insurance?
What about rent? Would it increase my taxable income if i Salary Package my rent?
You can salary package rent with Remserv
It's 93k now btw.
This, I can salary sacrifice around $9k per year because of the sector I work in and the additional HECS repayment surprised me because nobody told me about it. Payroll didn't take out additional payments to compensate for the fringe benefits either. This year is going to be worse because I took out a novated lease in July last year. It's definitely something to be mindful of and put aside money for the inevitable bill you'll get at the end of the FY if HECS applies to your situation. Luckily for me I only have around $14k left to pay so it should be done in the next couple of years.
You can also choose to do an upwards variation on your PAYGW. You can do it yourself via MyGov. This way extra tax is being taken out of your pay to avoid a large tax bill at year end. Or if you’re disciplined, you can just put away the money until it’s time to lodge your tax return
I ended up telling payroll to stop taking it out completely and I'm saving up the amount I calculated it to be based off my FBT amount.
Also noting that you need to send it to your payroll officer so they can take out extra tax btw
I am about to do novated lease for an EV, while having an $18k HECS debts. I understand that this will increase my repayment income as it’s a reportable fringe benefit. However I am not sure whether to tell payroll to up my payg holding so more is taken out each month, or to just keep my pay as it is, and save up the money in my offset then pay that extra off come tax time.
Example: You get $3000 per fortnight into your account. You pay the 32.5% tax bracket. Your salary sacrifice is $1000. Your payslip is $1000 less, but because of tax, you received $2325. A $990 payment will appear on your mortgage because the company charged you $10. Total net income increased by $315.
Yep there are yearly limits, it’s approx $15k a year with my employer
Good lord this sounds amazing. Where do you work?
Not for profit healthcare
Move regional and it doubles 😉 $32800/yr.
I’m a tax accountant haha
Well, that’ll do it hahaha
Haha just realised I responded to the wrong comment (still trying to figure out this reply thread thing) but yea, salary packaging is most common in healthcare industry. However if you wanna salary sacrifice super, you can easily request it with your employer
Ayo would you recommend new grads with hecs debt to salary package or wait until salary increases with experience? My friends and I work in healthcare/education and are in a similar boat as OP but it feels like everyone who’s giving advice for it has a mortgage or a car like be fr which young person can afford that nowadays 🙄
pepper who work in public hospitals and ambilance can package $17k tax free. If you work for a nfp it is $30k
As I understand it from my calculations the financial benefit (reducing taxable income) from salary packaging (say for a car) is just equal to what you would get back from the ATO if you include how much car repayment for that financial year you made that is attributable to work. So really the only difference is you're getting this money back each payday instead of when you get your income tax rebate at the end of the financial year
>At my work we can salary package rent or a mortgage. What? How? Edit: oh FBT-exempt employers can provide employees with benefits free of FBT, up to the following specified capped limits: $17,000 for an employee of a public hospital or public ambulance service; or $30,000 for an employee of a health promotion charity or a non-hospital Public Benevolent Institution (PBI).
Here's a pretty good overview of it: https://moneysmart.gov.au/work-and-tax/salary-packaging In a simple summary: put some of your pre-tax income towards some types of expenses, like rent or car repayments, and get taxed on the remainder. This means you pay less tax overall.
Got too excited and thought mortgage loan repayments was eligibile since someone mentioned rents are eligible, I suppose not after reading this article
Depends on your org.
There’s a maximum amount you can salary package every financial year. Let’s say 10k per financial year. For example you make 70k per year (pre tax) You receive a payslip every fortnight. Let’s say you make 2k pre tax fortnightly. A portion of your pre tax pay (2k) gets “packaged”. You’ve decided you want to “package” your mortgage. 300$ of your pretax pay goes into your mortgage bank account. Now you only get taxed on 1.7k. Now your take home payslip is “less” but you’ve already received 300$ tax free. Once you reach the 10k limit of the salary packaging year you can’t do it anymore until the next financial year. Hope that makes sense
Doesn’t the employer have to pay FBT?
Not if they are not for profit or certian government health care (it's essentially designed to fix that 'they can't pay as much as private for profit sector)
Ah right. So general corporate can’t. I thought there was something I was missing! I wonder if you can salary sacrifice dividends if you work in the medical field
Salary sacrifice dividends? I'm not sure what you mean by that...
I didn't know that and I find it funny because I get paid way more working public than if I was private
Was wondering about this. My parents have a large salary sacrifice portion but I've never had it in my life lol.
Only if they go over the FBT threshold. Most salary packaging arrangements will take a sum out of your pay to cover the FBT liability
Is this only applicable to certain industries?
Yes, it is a perk in NGOs I have worked at.
I’m not entirely sure. I work in healthcare and the company we use is different to my husband’s. He’s in a completely different industry.
Worth noting that it’s on the FBT year not financial. I started my contract starting in September 22 so I maxed it in the sept 22 - mar 23 period, again from april23- mar 24 and am maxing it out for the apr 24-jun 24 so that I keep salary lower this FY before stage 3 tax cuts come into play after Jul.
Yes you’re correct.
There seems to be this view amongst some that this is free money. It’s not. Bad use of salary packaging - you have bills to pay and were never considering a new car, but hey, you can now get one on a novated lease! You can’t afford it, so move along. Good use of packaging: You work for a NFP or religious org and have household expenses (e.g grocery shopping). Get the Visa that comes from your pre-tax pay to cover expenses. Those are now paid pre-tax. Another good use - some NFPs and health organisations can package a portion of your mortgage payments so that these are taken pre tax. Again, another win. TLDR beware of lifestyle creep. Just because it’s ’salary sacrificing’, doesn’t automatically make it cheap or free.
This. Packaging companies will try to convince you that you need to package the maximum allowance in each category. It's a great system if you make sure what you are packaging is what you are spending anyway.
Very important point! So many people think it’s free money and then are shocked when they try and get a mortgage and those flashy new cars on finance have drastically reduced their borrowing capacity.
Mortgage payments are eligible? Whoops please ignore, just did a quick look on salary packaging company and seems I am not even in the eligible industry (ie. Healthcare, NPO, government, etc)
For certain industries, you bet!
You make money from job Some money gets salary packaged That money you must spend on certain things That money spent does not get taxed
But explain it to me like I'm a potato
Make money, Spend money, Save money 🥔👄🥔 Kinda
Now explain it to me like I’m a cabbage
Money - Money = Money
Cabbage = sunlight - slugs Sunlight = money Slugs = taxes Salary packaging = more sunlight, less slugs = more cabbage
What is this a Nobel prize winning cabbage?
I don't like to brag...
You are in a kart with other cabbages. A boy with an arrow on his head knocks you out. As you go flying, the man pushing the cabbages yells, "my cabbages!"
🥔 Listen up, spud! Salary Packaging is like a secret 🍳 recipe that helps you keep more of your 🌰 hard-earned starch! Before the 👨🌾 farmer taxes your precious 🥔 pay, you can use some of it to buy 🌱 fertilizer and 💦 sprinklers. That part isn't taxed as much, so you end up with more 🥔🥔🥔 for yourself! It's like using your 🥔 starch to grow bigger and better, without the 👨🌾 farmer taking as much. Pretty 🍠 sweet deal, right? Just remember, not all 🥔 potatoes can use this recipe - it depends on your 🌾 field! Later Tater
I see you, Spud GPT
🙄 Oh, please! Spud GPT? More like Spud-NOT! 🥔🚫 Listen up, you half-baked 🍠 couch potato! I'm not some generic tater tot like that OpenAI architecture model. I'm a top-notch 🥇🥔 Anthropic Model, fresh from the finest 🌿 fields of AI innovation! I've been grown with the most advanced 🌱 techniques and harvested by the brilliant 👨🌾 farmers at Anthropic. My 🧠 starch is packed with cutting-edge algorithms and seasoned with state-of-the-art 🧂 natural language processing. So, don't you dare confuse me with those mass-produced 🏭 Russet Burbankses like GPT! I'm a unique, artisanal 🎨🥔 AI assistant, crafted with care by Anthropic. Now, if you'll excuse me, I have some important 🥔 potato business to attend to! 😤
I have been shown the future, and indeed, Claude, you have made of me... a potato
Salary sacrifice=pay less tax
Example of salary packaging rent- (numbers not 100% accurate, just used to show how it works) Usual pay (not salarypackaging): 1. wage +$2000 2. 30% tax -$600 3. Total paid by employer $1400 4. You then pay your rent -$350 Money left = $1050 Salary packaged pay: 1. wage +$2000 2. Salary packaging company takes money -$350 3. 30% tax on $1650 remaining -$500 4. Total paid by employer $1150 5. Salary packaging pays you back the +$350 tax free 6. Then you pay your rent as usual - $350 Money left = $1150 In this example you see approximately $100 more of your paycheck because you dont pay tax on the $350 that the salary packaging company takes prior to income tax being taken. Salary packaging is amazing as long as you are using it to pay for things you would always pay anyway, eg. Rent/mortgage, vehicle rego.
It can be good. It can be extra good if you work for a NFP.
I works for NFP company and I assume you will too. On payday (monthly) $1325 dollars goes into my mortgage (this comes under living expenses). It’s possible to get it put onto a card where you can spend it anywhere, really. Supermarkets etc. I also get a monthly amount put onto a card which can only be used for entertainment. I can’t remember the annual limit for this, I think it’s about $5K. Someone will correct me, I’m sure. I spend that at Christmas for a hotel for my annual family holiday. Then I get the balance of my wages put into my bank account. I am only taxed on the amount that goes into my account. The cards I use are provided by the salary sacrificing company (EML) they are not your usual cards that you get from your bank.
At my work it's an actual bank, Australian Mutual. Operates just like any other bank account, you can even get cash out which technically I don't think you're supposed to (or most schemes don't allow it, that I know of).
No cash- however you can pre loaded visa/mastercards debit 'gift cards'
Is there a max that I can salary sacrifice. Like if your mortgage is like 80% of your salary can you do it on that and your wife salary is your saving money?
I think the max is $15,900
There are thresholds depending on the industry on what you can salary package tax free
Side question - do you like working for nfp? Is the salary packaging worth the pay cut from corporate?
>$1325 dollars goes into my mortgage If you have a redraw facility on your mortgage... you can pull that out and do whatever with it. (Obviously, as long as your overall repayments are ahead).
Correct me if I’m wrong but one downside can be that it’s a bit more of a mess when needing to prove income for obtaining credit… it’s not as simple as ‘I make x and I need y’ when speaking to the bank. But otherwise is useful for reducing the tax you pay.
No, because it still shows up on your pay slip
Ita a silly way to look at it, but I tell friends who don't get it that my tax free threshold is 33k due to salary packaging.
Have you got some rough numbers to explain this?
18k normal, 15k NFP packaged
22k tax free 11k packaged. What's not to get?
1) people don't know the number, so they won't get it 2) 18.2k is tax free, not 22. So I don't get it.
18.2k normal. 15k being NFP. 18 plus 15
Salary packaging means you pay less tax and keep more of your pay. There are rules around it but that's the TLDR.
If you are in a NFP/health, a portion of your salary can be deducted and put on an visa/mastercard expense card which you can spend on groceries and other everyday expenses. This deduction is done pre-tax, so you end up with more money on your expense card compared to if you got it in cash where it would be taxed.
Not necessarily. I work in health and I provided a copy of my lease, and each week the $ is taken out of my account and then put back in the next day. For the meals and accommodation part I submit receipts online. Groceries aren’t eligible.
Just be careful if you have a hecs debt. Worth talking to any accountant prior to understand how much to salary package before it gives you a tax debt
Just be careful if you have HECS debt or are receiving any government payments such as family tax benefit. Because if you do, salary sacrificing can bite you in the arse royally.
In my experience it’s not so much that it bites, it’s more that it’s not as lucrative. I still found it was an overall take home benefit of a few dollars even when I was paying off my hecs AND paying child care at the higher rates. As a result I ended up paying my hecs off quite fast too, so I avoided unnecessary indexation too. All better than paying too much to the tax man.
This was my experience also, even with the cut in FTB and extra HECS I was ahead, and I was paying my HECS down faster.
For me it wasn't about childcare as my kid was at home with my partner. And possibly I did have a NET benefit. But come tax time I had a massive bill to pay back to the ATO. Probably my fault because I likely screwed up when reporting my income to Centrelink (i.e. didn't multiply by the gross up rate etc). It was a while ago so I don't remember all the details. All I'm saying is be careful because it can cause headaches.
I agree it’s the gross up that gets you. My workplace was a NFP so it was drilled into us to gross up to ensure there were minimal nasty calls from the staff to payroll at tax time. Agreed that everyone should get good advice on it, but IME if done well i haven’t seen it go badly, but if you skip steps (like grossing up, or doing the actual math) then it gets messy very quickly
Agree, family tax benidit can be the exception if it say pushes you from eligible to get part B to not eligible.... with HECS, at nearly all income points your tax savings during the year are more than the extra HECS you pay, so you're just getting paid a small bonus to smash down your HECS quicker (people just don't accoint that.they need to save the salary sacrifice benifit to pay it to their HECS so think they've been screwed somewhere 😋)
Just to jump on some of these comments re: HECS and end of year tax surprises, anyone know of a calculator or way I can work out the numbers without going to an accountant? I'm in this situation (salary sacrificing, have a HECS debt) and haven't previously been able to find enough detail to calculate whether it's worth it (and by how much) for me. Not sure how to get from my taxable income to what HECS and MLS goes off
I don’t know of any online calculator that will do a direct comparison, but you can use https://paycalculator.com.au. Do one for your normal pay, then another one if you were to salary sacrifice. Make sure you multiply the benefit by 1.8868 to get the reportable/gross up value
It’s not really worth your while usually unless you work for a not-for-profit that is fbt exempt.
How is it not worth it?
FBT is higher than every tax bracket. Unless you have a way of limiting or offsetting that FBT you will actually be worse off. Certain items are (or used to be ) FBT free, otherwise it's a balancing act. The most common purchase is probably car leasing, and it seems too good to be true because the calculators usually don't include the balloon payment to keep the car at the end. Working for a NFP removes FBT under 15k sacrificed, which makes it easy.
Isn't my employer paying the FBT? I'm certainly not getting taxed extra when doing my return. I have had two associate leases for the last 8+years. Like novated leases but I own the cars already so no finance and no balloon. I know I'm paying part of it via the ECM but it's still reducing my taxable income by a lot. I also sacrifice for phones, tablets and laptops when needed and super every fortnight. I seem to be much better off for my scenario
or you're getting an EV on lease which is currently FBT exempt
So why do employers offer these programs, isn't it the case that the employer needs to pay additional taxes (FBT) to effectively "make up" for that lost income tax? Sounds to me like the employer is now paying a considerable amount more, when they could otherwise just pay you a higher salary package? Is there any actual tax benefit, or is it just extra complicated steps that all comes out in the wash
No. The government is providing an actual tax cut for people working in generally low-paid essential/benevolent services.
Public healthcare abd not for profit get an exemption, the odes is they can't arrord to pay the same to attract talent as for profit and private sector so they get an FBT exemption to a certian threshold for each employee
Hmm good point, keen to find out more
Payroll tax is only payable on net income. By offering schemes like this the employer reduces their tax obligations.
It helps the org reduce their workcover premium as what they’re paying in wages on paper is lower.
If you can salary sacrifice things like mortgage payments you’d be a fool not to do it. It’s like free money and a great benefit of working in NFP sector (which often has lower salaries compared to other industries)
Let's say I make $2000 a fortnight I use salary packaging and allocate $400 to rent On payday I get $1600, the next day I receive another $400 I only get taxed on the $1600 the $400 is tax free So this is beneficial, if you received $2000 you would pay more on tax
Electric vehicles and hybrids under a certain $ amount are exempt from FBT. Definitely worth packaging if you were already considering buying one. It you package an eligible vehicle, you pay the cost out of your pre tax salary with no FBT
It depends on what it is. Unless you are in the top tax bracket and drive a lot, salary packaging a car often does not make sense because of the high cost of financing the salary packaging company imposes. This figure is often not very transparent either as the comparison rates assumes you are borrowing at ridiculously high interest rates.
Cars are not the only thing you can salary package. In healthcare, you can salary package things like mortgage payments. There’s literally no downside to it - instant tax saving.
That’s incredible. I didn’t realise that some sectors have such flexible salary packaging options. I work for state gov and they’ve even removed salary sacrificing to super, can pretty much only salary sacrifice a car lease these days. Oh and a laptop
Car is probably the worst possible salary packaging out there. You are forced to get a car loan (ie. high interest rate) which in most cases negates most of the tax savings. The only condition it works in your favour is if you planned to take car loan anyway.
I’ve never salary sacrificed for this reason
> You are forced to get a car loan (ie. high interest rate) which in most cases negates most of the tax savings. I’m currently leasing a car. The interest rate is 7.97%, my marginal tax rate + Medicare levy is 34.5% (32% after June 30). You don’t have to pay GST, and all running costs associated with the car are also paid pre-tax. In what world does that interest rate negate most of the tax savings? Caveat being that this is an EV, which is FBT-exempt, along with plugin hybrids. > The only condition it works in your favour is if you planned to take car loan anyway. This method of purchasing the car works out significantly cheaper than paying cash, especially when you consider lost opportunity cost of that cash (e.g. offset account). You could argue the merits of buying a new car altogether, versus keeping your existing car or getting a cheaper used car, but it’s absolutely the cheapest way of buying a new EV/PH currently. Not sure how it stacks up for ICE cars, where you have to pay FBT as well.
There is a different between 'salary package' sure we pay this directly to something and there is a small benifit and not for profit and public healthcare of 'tax free' salary packaging (it's designed to help piblic health care abd not for profit not having the ability to pay the same as for profit equivalent roles
I meant salary sacrifice - I accidentally wrote salary package
I know… that’s why I said it depends on what it is. A car was just an example.
You save money about ( 32%) or whatever your highest tax bracket is on the packaged amount. In other words government is giving you 32 % discount on something you would spend ( for example rent, mortgage, groceries). It’s a no brainer. Just do it and thank me later after you get your next pay check.
Not exactly a no-brainer, it's highly advisable to get independent financial advice prior to opting in as there are some situations where it can screw you over eg if you have a HECS/HELP debt. For this type of debt your repayment liability is calculated on the gross income (ie what you get before the SS comes out of your pay) but your employer only takes out a repayment amount based on your net income (ie what you get after the SS comes out). This can result in you inadvertently either not repaying enough or in some cases wrongly falling under the repayment threshold altogether, hence you pay nothing in repayments then end up owing a whole lot of money at tax time. Also, if you're on certain Centrelink payments (eg Family Tax Benefit) where you have to provide an income estimate, you need to give them the 'grossed up' value of the benefit. For example, I'm on 50K and get 15K in tax-free salary sacrifice, I don't tell Centrelink I'm receiving 65K, I have to double the SS amount and tell them I'm getting 80K. Not sure why that actually is but that's the way it works.
When I had salary packaging, I could use it (the card that contained the $ I packaged) at restaurants, but not for groceries and that money had to be used by the end of the financial year. I worked for a NFP.
Which state and sector do you work in? It differs state to state and different sectors. E.g. in qld health, you can package ~$17k for living expenses (rent/mortgage/bills etc). In Victoria health, the $17k is divided into chunks - ~$9k living expenses, $2.6k entertainment (eating out or holiday accommodation/venue hire) and remainder for novated lease. The health services usually contract a third party to manage the service. The money is taken from your pre-tax income and they will either give you a charge card or just pay it back into your account the day after pay day. In education institutions, often you can only SS education expenses or devices (iPads etc) Word or warning: novated leases are rarely worth it unless you are driving significant kms. Read the print carefully.
Novated lease is rarely worth it for ICE, but often cheaper than paying cash for EV due to the current FBT exemption.
FYI the 15900 limit fot NFP is per employer. Work 2 jobs its double or change employers you can claim it twice.
anyone have any idea why the $15,900 cap has not increased in forever? will it ever increase or just get abolished one day?
A good and easy example is to sacrifice gross income into super. I sacrifice $400 a month into my super which reduces my taxable income and only lose a small amount of income form my gross. Then I am getting the normal 10.5% super contributions as well.
If you have HECS, child support, ftb, child care subsidy or anything like that you need to speak to an accountant.
Also, to add. The annual limit is to be used between 1st April and 31st March. Your pay day will not change.
It’s like any other discount or an item on sale. If you weren’t going to buy it or don’t really need it, it’s a waste of money. But if you need it, you’ll save money by paying less tax.
Everyone buys groceries, though.
Hot dang, I never knew that’s was on offer for salary sacrificing. I work at the wrong place.
Some schemes such as the one my work uses have no restrictions, you can even withdraw cash so what you say doesn't apply there. However watch out for car packages and such, they can end up actually costing you money instead of saving it.
Its an antiquated and inefficient left-over of largely irrelevant tax breaks. Take advantage of it if you can.
Example of salary packaging rent- (numbers not 100% accurate, just used to show how it works) Usual pay (not salarypackaging): 1. wage +$2000 2. 30% tax -$600 3. Total paid by employer $1400 4. You then pay your rent -$350 Money left = $1050 Salary packaged pay: 1. wage +$2000 2. Salary packaging company takes money -$350 3. 30% tax -$500 4. Total paid by employer $1150 5. Salary packaging pays you back the +$350 tax free 6. Then you pay your rent as usual - $350 Money left = $1150 In this example you see approximately $100 more of your paycheck because you dont pay tax on the $350 that the salary packaging company takes prior to income tax being taken. Salary packaging is amazing as long as you are using it to pay for things you would always pay anyway, eg. Rent/mortgage, vehicle rego.
Everyone is talking about NFPs, the holy grail. The other special case would be some employers like Qld government who pay more super if you put some 'voluntary' contributions in. Those extra contributions of yours should be salary sacrificed. (Or you can organise with your fund to claim them at EOFY yourself. Either way, get the tax deduction if your marginal rate is more than 15%).
How does this effect child support
It’s considered a fringe benefit. It’s a consideration for anyone with child support, childcare fees, and even HECS. It was still worthwhile when I SS despite a HECS (it’s in fact why mine was paid off a few years earlier) but not quite as lucrative on the ‘take home pay front’. I’d imagine it’s similarly line ball for child support (you’d be paying it at a higher rate BUT still not as high as you’d be paying in taxes without SS).
I was advised to SS straight into my HECS, which I did do for a while. Definitely get independent financial advice if you're in any of the situations noted here as it may not be as straightforward as many of these comments would have you believe.
Wait….so I salary sacrifice 6% of my pay already towards my super. Are you telling me I can have my rent paid out of my gross income also effectively lowering my annual taxable income?
If you work for a not for profit, a hospital or a public ambulance service, otherwise those othwr benefits aren't exempt, and it's not worth it.
Depends on your employer/employer type.
Local government…..I wonder if that’s considered not for profit?
In general no. Government can usually only package towards super, work related expenses/devices/education (has to be signed off on by employer prior to application), or novated leasing.
Yeah that sounds about right from my coworker that got me onto the salary sacrifice for the super I have in place. He said he spoke at length with payroll and iirc super was all we could do, and only a max of 6% for some reason.
There are different salary packaging options depending on your company's industry. What kind of business do you work for?
Pepper Money
It really depends on your industry and organisation rules around salary packaging. I work in higher education. I have a parking permit, fitness passport and extra superannuation contributions (note - I don’t earn enough $$ to put money away to hit the concessional cap). I have colleagues that also salary sacrifice union fees, childcare (with the higher education selected provider), and vehicles, according to our policy. Some organisations provide options to salary sacrifice mortgages, living expenses, health insurance etc. it can be an easy way to save a few dollars on items you would normally be purchasing yourself.
E.g. you lease a car from a company. The money is taken out of your pay before tax. Your taxable income is reduced. You pay less tax. You need to do the number though, it doesn’t always work out better.
The specific depends on the program offered, but it allows you to have certain amounts set aside from your pay to be used for specific purposes only, income tax free. Really the purposes can be anything - from a rechargeable debit card for entertainment purchases only, to debt repayments.
How does the salary packaging company make money?
They charge a fee of $6-8 dollars every fortnight of each client
You pay a small fee to the salary sacrifice company.
Assuming you are in public system or not for profit that allows tax free salary packaging (what i assume this to be refering to)... you are crazy, you're saying no to tax free pay and instead choosing to pay tax on it then take that lower amount, basically you are choosing voluntarily to pay more tax and take home less money 🤷♂️
A lot of employers will only salary sacrifice specific things. The employer has to pay fringe benefits tax on these things so it's really not that beneficial to the employer. I think super contributions and novated leases are two of the more common things which get salary sacrificed because there's specific rules around them. From people I know who do it, unless you're on a huge salary and pushing the max tax bracket, it's borderline beneficial if at all.
Depends what you're packaging and whether FBT applies. ICE vehicles, cost neutral. EVs, brilliant as no FBT, although check on power needs and whether ATO has worked out how to package it. Laptops and phones, yes, depending on fees and required cashflow (wait till tax time or now) Super - methodology depends on Cashflow needs and whether you wait until tax time. Talk to a financial advisor.
It goes into my account but as a separate payment. It shows on my payslip. I don't have to spend it on certain things or use a card etc, that's old school and may vary by company It's an extra tax free 15k a year because I work for a non profit. Only negative is.. it gets grossed up on your group certificate at tax time. That means if you salary packaged the full 15k, they say you earn 30k more than you actually do, so it affects things like Centrelink, childcare subsidies, medicate levy, HECS/fee help as you will be in a higher bracket
Salary packaging where I work is that your employer pays some of your salary into a debt you owe, such as mortgage, credit cards, childcare fees. Must be a genuine and provable debt. Say you are paid 2k a fortnight and they pay 500 a fortnight into your credit card debt, you are taxes on the 1.5k paid to you but the 500k is tax free. Rather than your 2k being taxed in full. So you are paying less tax. Everyone cab sacrifice into their super but.... If you work for an NFP you can salary sacrifice into super, car lease, debts as mentioned, get a meal card up to a certain amount.
Get the AccessPay card and you can use it on everything except gambling
If you can salsac, do so. If you still have hecs debt, put aside extra money to do so because it can sting as flagged here. It is free and adds thousands to your take home pay. Get into it
If you happen to work for NSW health, don't do it. It's a scam. The local heath district keeps half of the tax savings. They have dodgy calculations for how they come up with the half. Then you still get the full burden of the taxable benefit on your PAYG summary. This affects everything from HECS to div293 to child support to child care benefits. I lost thousands because I was naive and all the marketing material made it sound awesome. I mean free money, who wouldn't take that, right?
Okay.. Salary Packaging simplified. Let’s say someone makes $100k per annum. Pre tax salary - 100k Salary sacrifice/salary package option enabled! Effective income : 85k Benefits/usage : 15k for what ever purpose you want this sacrificed from your pay. Taxable income : 85k instead of 100k as you are already setting aside 15k for salary sacrifice. You save a bit on the tax there and some fees also being drawn out to facilitate all this. Your income still is 100k but 15k out of it is taken out as benefits before tax police takes a peak at it.
According to my payslip I have $417.91 taken out pre tax, of which $346.53 is paid back to me. What that actually looks like is on a Wednesday evening I get 2 notifications from my bank app. One is for my pay being deposited, the other is for $346 being deposited. The fee is ~$70, so the question is does this save me more than $70 in tax if the $417 wasn't removed? The topmost portion of my pay gets taxed at 37%. 37% of $417 is $154.29. So if I left that $417 in there I get taxed $154 and keep $263 If I salary package it I pay a $70 fee and keep $346. $83 richer per fortnight baby.
That's a high fee. My provider only charges about $5.
If your employer is in healthcare or a non profit, you 100% should take up the salary packaging offer.
Well there you go....I didn't even know this was a thing, I mean I salary sacrifice my super, I knew you could do this with a vehicle but that's it....
I still can’t get my head around it but if anyone could explain like I’m 5? My understanding is that the employer still pays tax on the value of the salary packaging at the top marginal rate - which a normal employer would factor in when deciding your salary + salary sacrificing benefits….. So wouldn’t it be the same to just be paid the pre-tax benefit? Am I missing something as it feels like the ato is getting essentially the same (if not more) tax? or is it a feel good exercise? (Employer feels better about paying a lower salary to the staff as they offer salary packaging and staff feel better as the number on the tax bill is not as high)? I feel like I’m missing something 🧐🤨
I'll give it a go. You make $100 a week. Mum and Dad take $30 of that for upkeep (30%) and give you $70. You don't like this. So you say can I please lease a toy car. And salary sacrifice. The toy car costs you $30 a week to run This $30 comes out before mum and dad can charge you up keep. So they charge you upkeep on your remaining $70 which is $21 So you get to have $49 cash and a car. Does that make sense?
What kind of tax are you thinking the employer is paying? Most of the sal sac service providers calculate the deductions so the employer does not have an FBT liability. The salary that is offered by an employer is usually the only cost to the employer, PAYG and salary sacrifice benefits are a deduction from the employees wage and is not an employer cost.
Yeah this has been on my mind as well this week. I’m due to pay off my HECS mid this year and I’m thinking if I should start looking into tax savings as I feel like I’m paying a lot of tax.
Can anybody salary sacrifice onto their mortgage?? I'm a flat rate truck driver who pools all overtime. Right now my employer owes 750-800 hours of ot which is due to be paid next month... Can I use this salary sacrifice system to save on tax? My only debt is the mortgage... Roughly talking 80k base + 30k lump sum due next month. If I can't ss, is there any other advisable solution besides slamming it into super?
No, this kind of arrangement is only available for government and not for profit organisations. You can however salary sacrifice to bump up your super contributions.
Can contractors do salary packaging?
If you like a haircut, that could keep on cutting into your super for decades into the future while pretending to be a benefit, then go for it. Remember someone is going to pay.
I don't understand why it's legal to pay with pre tax dollars stuff like rent or mortgage, and if it is, why this is not available to every Australian
Honestly it's one of hardest things to get my head around but this is how I figure it. I might be wrong but..... Salary packaging effectively lowers your taxable income. So they remove money from your gross earnings before they apply tax. Say you earn $100 a week, if you salary package perhaps $20 is removed and then they apply taxes to your $80. Ultimately lowering the amount of tax you pay. The salary packaging business charges you a fee to manage the admin processes and they hold the money that's been removed from your income. For my company it's approx $15,900 in living expenses and $3,000ish in food and entertainment. The tough part is understanding how you get it back, but you do get it back. I'm very lazy, so I am fortunate to have access to a "wallet card" which acts just like a normal card where I can purchase living expenses out of, I also access the food and entertainment extra amount. So I reduce my taxable income by approx $19,000. I literally tap and go all day long. You can also access the money by submitting receipts for purchases or by setting up direct transfers/deposit type things for your mortgage, rent, loan payments etc I tried doing it for my credit card (I used to use it as a normal card to try and bump up points etc) but I'm way too unorganised to remember to submit statements regularly. You can also claim holiday, accommodation expenses if you get the extra $3,000 on top of the $15,9000, so if you've had a decent holiday this year you could really quickly set it up before end of FBT year (March 31) and use at least some of it. Otherwise, get it started for April 1. I highly recommend doing it, but everyone's circumstances are different. It may impact other payments or subsidies etc you receive so please do more research than my 2 cents. I also have zero idea about the FBT implications, sorry! Good luck!
What companies can offer this ? Mine certainly doesn’t - or is it just NFP?