Salary Packaging

What is Salary Packaging?

You can choose to sacrifice some of your salary in lieu of other benefits. Normally there will be a reduction in your income tax, increase in disposable income or increased benefits when considering the salary trade off.

How does it work?

• A formal agreement is put in place between yourself and your employer outlining the packaging arrangements.
• Your employer administers the transactions for packaged items.
• Income and associated fringe benefits (where applicable) are outlined in your payment summary each year.

When does it work?

Salary packaging is only viable for employers who are fringe benefit tax (FBT) exempt or receive concessional status. Otherwise, benefits that you package, with limited exceptions, will be subject to fringe benefits tax at the top rate of 47%. This negates any saving on income tax rates.

Exceptions can include items that are used to generate employment income such as tools of the trade, technology and software, and specific clothing as required. Some items such as cars, receive concessional FBT treatment for a portion of usage.

FBT exempt employers include public benevolent institutions and approved hospitals. Certain religious / educational institutions and charities may have FBT rebatable status meaning they can claim a rebate for FBT up to certain thresholds.

What are the benefits?

• Your employer will manage the payments for you.
• Paying for benefit items before it is paid to you, reduces the likelihood of you spending it on other discretionary items.
• Your disposable income may increase as you are not paying tax on the packaged items.

What should I be thinking about?

• Not all employers offer this service, you need to check with them to make sure they can facilitate this arrangement. This agreement should be formal and in writing.
• Although your employer pays the fringe benefits tax, it will impact your access to other government tax offsets, payments such as super co-contributions, and Centrelink benefit entitlements.
• Given the tax implications of salary packaging, we recommend professional tax advice before proceeding with any package arrangement.
• Other employer entitlements may be calculated on your cash salary only (excluding packaged benefits). This could reduce your entitlements.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), Blue Rock Private Wealth (Melb) Pty Ltd (ABN 48 652 202 698, ASIC AFS No. 1298365) and their representatives make no representation as to its accuracy or completeness.

Published: September 2022.

© Copyright 2022.