Navigating the maze of income tax can be daunting, but what if there were a legitimate way to reduce your taxable income while receiving the full value of your salary? For employees of certain not-for-profit organisations, salary packaging is that golden ticket. At GO Salary, we are dedicated to demystifying this subject and helping you make the most of this financial opportunity.
What is Salary Packaging?
Salary packaging, also commonly referred to as salary sacrificing, is a financial arrangement between you and your employer that takes advantage of tax concessions available to employees of certain non-for-profit organisations such as charities, aged care, and public hospitals.
Instead of receiving your entire salary as taxable income, a portion is ‘packaged’ to cover various expenses or benefits that you would normally pay for with after-tax dollars. The end result? Lower taxable income and potentially greater net pay.
How Much of My Salary Can I Package?
The Australian Tax Office (ATO) sets the limits for how much you can salary package. For charities, aged care, disability support, community services, and medical research organisations, the limit for general expenses is $15,900 per annum. For public hospitals and ambulance services, the limit is $9,010 annually.
As well as the above amounts for general expenses, employees can also salary package up to $2,650 for meal entertainment and holiday accommodation expenses.
How Does Salary Packaging Reduce My Taxable Income?
The principle is simple yet effective. By diverting a part of your pre-tax salary towards eligible benefits or expenses, you effectively lower your taxable income. Here’s a quick example to bring it to life.
Imagine you earn $60,000 per annum and decide to salary package $15,900 of that towards your rent payments. This action would bring your taxable income down to $44,100, potentially shifting you into a lower tax bracket or at least reducing the amount of tax you need to pay.
To find out how much you could be saving on income tax, try our handy tax savings calculator.
What are the Benefits of Salary Packaging for Employees?
The most obvious benefit of salary packaging is a reduction in income tax. As previously mentioned, by minimising your taxable income, you’ll be maximising your take-home pay. Salary packaging can also help you budget by understanding your expenses and diverting pre-tax funds to extra benefits like a Meal Entertainment Card.
There’s also the benefit of flexibility. While salary packaging can seem somewhat fiddly and complicated at first, an expert service provider like GO Salary can help you navigate the system and tailor a unique solution to your needs as they change.
How GO Salary Can Help You
Salary packaging is a valuable tool in an employee’s financial toolkit. The GO Salary team has plenty of experience and knowledge and is dedicated to helping you make the most of your financial options. There is a helpful team, an easy explainer video, a range of fact sheets, calculators and a fully interactive online experience which can be set up in minutes…all designed to help you.
FAQs
What exactly is salary packaging in relation to income tax savings?
Salary packaging allows you to allocate a portion of your pre-tax salary to pay for/reimburse eligible expenses, thereby reducing your taxable income and the amount of tax you owe.
How does salary packaging differ from regular salary in terms of tax implications?
In a standard salary arrangement, you pay tax on your entire income and then meet expenses with your net pay. With salary packaging, you meet these expenses (up to a limit) with your pre-tax income, which results in a lower taxable income and, consequently, less tax payable.
What types of items or benefits can I include in my salary package to save on income tax?
The list can include general household expenses like rent payments, mortgage payments, credit card repayments, rates bills, school fees and more. Meal entertainment (dining) and holiday accommodation expenses can also be salary packaged.
Is salary packaging different to salary sacrifice?
The terms are often used interchangeably. However, salary sacrifice typically relates to superannuation, which can also be another pre-tax benefit. Superannuation is subject to its own limits but salary sacrificing to super doesn’t impact the salary packaging limits of $15,900 or $9,010.