Have you started a new job and haven’t got around to setting up your salary package? Or perhaps you’re about to start a new job in the not-for-profit sector and you’ve been given information about how salary packaging works? Either way, now is the time to take a look at the options available to you, as we get closer to the final stages of the reporting year.
Hang on, which year?
Keep in mind that salary packaging payments are calculated on the year commencing 1 April – 31 March. This is also known as the FBT (fringe benefit tax) year. This often trips people up, as we are all accustomed to calculating our income and tax on the financial year, which runs 1 July – 30 June.
Why is this important?
If you work for a charity which offers $15,900 in tax-free salary packaging benefits, the clock is ticking to utilise them. Payroll can deduct a pre-tax amount from your earnings for salary packaging each pay…but as we get deeper into the year, the number of pays remaining gets lower and lower!
This sounds confusing. How about an example?
Let’s say you get paid fortnightly, and you’ve been salary packaging since 1 April. There are 26 fortnights in the year so the maximum $15,900 salary packaging payment will be divided over those 26 pays. This means that Payroll can take out $15,900 / 26 = $611.54 pre-tax each pay to be salary packaged, and over the course of the year, you’ll hit your $15,900 maximum benefit.
However, let’s say you haven’t been salary packaging since 1 April. You might join in November, and there are only 10 fortnights left in the reporting year. If you wish to get your full $15,900 in pre-tax benefits, Payroll will have to take out $15,900 / 10 = $1,590 in each of those remaining 10 pays. We call this ‘maximising’.
Why is it so important to act now?
As the number of pays gets lower and lower, the per pay amount coming out of your pay to reach the $15,900 needs to be higher and higher. Remember – the salary packaging amount needs to come out of your pay in the first place! For example, if you want to salary package $15,900 and there are only 2 pays left in the year, you will need to earn $7,950 per pay for the pre-tax deduction to be successful. This is unlikely on a fortnightly payroll, which is why it’s important to set up your salary package with as many pays remaining as possible.
You don’t need to reach the full $15,900.
Most of our members will strive to salary package the full $15,900 in a year but it is not a requirement. Even if you join your employer’s salary packaging program with a handful of pays remaining, you can still salary package as much as possible. This might not be the full $15,900, but it might be your entire earnings…which means you don’t pay any tax in those pays.
How to maximise your salary package from now until 31 March
When setting up your salary package with GO Salary, you will see the ‘maximise your salary package’ tick box when you add your expenses. Your salary package will be maximised as long as this is ticked. If unsure, just send us a message through your GO Salary inbox and we’ll check it out! Maximising might not be available at all employers and for all roles, as it depends on each organisation’s policy.