Salary packaging cards are hugely popular and offer a number of benefits. However, they don’t necessarily suit all employees, and all options should be considered when it comes to creating the right salary package for you. So, let’s get into it.
What is the salary packaging card, and how does it work?
In short, your pre-tax salary packaging money can be deposited to a salary packaging card. The limit is $15,900 for employees of charities and $9,095 for those in the public health sector. This card is then used to pay for your expenses, such as everyday shopping, petrol, bill payments and more. GO Salary uses a Visa debit card issued in partnership with Beyond Bank Australia. It performs just like a regular debit card, but there are some restrictions in order to enable FBT compliance:
- Cash cannot be withdrawn. All purchases must be made using the card, not by taking cash from an ATM.
- Money cannot be transferred to other accounts. Again, purchases must be made using the card itself.
- No additional funds can be deposited to the card. It’s for your pre-tax salary packaging money only.
- Any accumulated funds should be spent by 31 March each year. This is the final day of the FBT reporting year.
Most employees treat it like a regular expense card, reaching for it first when at the shops. There’s no credit limit attached, which means no concerns around overspending.
Why is it a popular choice?
There are some compelling reasons for using a salary packaging card. These include:
- Very straightforward. The card can be ordered quickly and your money is always in the one place.
- No proof of expenses (substantiation) needs to be submitted. All payments are recorded on the card, which removes the need for ongoing paperwork.
- It’s a popular choice for those who don’t have large living expenses such as rent or mortgage payments, and would therefore struggle to find $15,900 worth of proof.
- It’s easy to administer for employers who manage their own salary packaging programs. By offering a card to all employees, a manageable outcome is created for Payroll.
Because of the above, salary packaging cards remain a common fixture in the wallets of NFP employees.
What is the non-card option?
For those who don’t use a card, the salary packaging payments are commonly deposited to a bank account. These might be as a direct payment for, or reimbursement of, common living expenses. The most popular are:
- Rent payments
- Mortgage repayments
- Credit card repayments
- School fees
- Rates and water bills
- Car and personal loan repayments
- Health insurance
- University fees
Rather than the pre-tax money from an employee’s pay being paid to a card account, it goes to the account of their choosing. Proof needs to be provided to evidence the expenditure of the nominated expense(s).
What makes the non-card option popular?
Generally speaking, many employees already have large expenses, so they find it easy to have their pre-tax funds directed to them. And for most people with rent or mortgage payments, the annual value is over $15,900 per year, which makes the substantiation side of things easy.
Further, the employee can save on card fees by avoiding one altogether.
Can you ‘mix and match’ the methods?
Yes, absolutely. Let’s say an employee has $200 per week in rent payments, which is a total of $10,400 annually. If working at a charity, this still leaves $15,900 – $10,400 = $5,500 available to salary package. If it isn’t easy for the individual to find proof of expenses for that value, a card is a great option to ensure that they still salary package the full amount and don’t miss out. Assuming a fortnightly pay cycle, the breakdown would be as follows:
- $400 pre-tax per fortnight for rent reimbursed/paid to a chosen bank account.
- $211.50 pre-tax per fortnight paid to the salary packaging card.
The great thing about a managed salary packaging arrangement is that it’s easy to change at any time. If the rent ceased, for whatever reason, the payments to the card could simply be increased. Likewise if the rent costs increased.
What is the best approach?
We need to roll out the standard ‘seek your own professional advice’ line here. But generally speaking:
- For those with $15,900 in easily evidenced expenses from the list above – no card needed. May as well receive the payments in your chosen bank account.
- For those who don’t have any expenses easily evidenced from the list above – grab a card so that you don’t miss out (unless your partner/family member at home has the expenses that you share).
- If you don’t want to provide any proof at all – get the card so that you never have to worry.
Remember – for most employees, the key is to salary package the maximum tax-free possible. The expenses/cards used to get there can be largely irrelevant – there’s no right or wrong.
If you’re ever unsure, please feel free to speak to the GO Salary team. We’ve chatted all things salary packaging with thousands of NFP employees and are always happy to chat through our experiences, even if you don’t use our services.
Is this the same for the meal entertainment card (‘meal card’)?
Pretty much. The meal entertainment limit of $2,650 per annum is ‘on top’ of the limit for general expenses. Some employees prefer a card so that they don’t need to save their dining and holiday invoices. Others likely spend a big chunk of their limit on a couple of holidays per year, so there’s no need to get a card, as the invoices are easy to provide. Again, as long as you’re using the benefit, you’re achieving the maximum tax savings!
A note for employers
If you run a card-only salary packaging program, you’re likely doing so for ease of administration. This makes a lot of sense. If you ever get to the point where you would like to outsource the administration of the program, the workload can be kept the same (or reduced), even when different benefits and methods are offered. This increases choice and accessibility for employees and GO Salary can take you through how this works.
Questions?
As always, please feel free to get in touch! We have a lot of experience and are always happy to offer thoughts and suggestions, as well as answer questions.