Salary packaging can provide substantial benefits to employees and business owners.
If you’re looking to make the most of your money, salary packaging – an approved benefit from ATO - lowers your taxable income to pay less tax. Tax is deducted before you receive your pay. But the arrangement between you and your employer holds more value than simply increasing take-home dollars.
To get the best benefits, it’s important to understand how salary packaging works. If you pay tax, the advantages apply to you. Here’s what you need to know about salary packaging in 2024.
What does a salary package involve?
A salary package agreement is an Australian Tax Office (ATO) approved way of receiving benefits with your pre-tax dollars.
You agree to forego a portion of your income (pre-tax salary) for employer provided benefits. This pre-tax contribution from your income can be used to pay for living expenses and everyday items, giving an immediate tax benefit and more money in your pocket.
To get started:
Ensure your employer supports salary packaging – find out about the benefits for business owners here
Determine how much of your pre-tax salary you want to use
Nominate your chosen employer provided benefits, such as rent or mortgage payments or paying for utility bills
Complete a Salary Packaging Application Form with your employer
The process is simple and involves:
A portion of your wage being deducted before you pay tax (this portion remains 100% tax-free, whilst the rest of your income is tax-deducted)
This amount is paid to your chosen employee provided benefits
Remaining pay is taxed and paid to you as normal salary
What are the benefits of salary packaging?
If you pay tax, you can benefit from salary packaging.
The benefits available to you are determined by your employer. However, all salary packaging agreements are designed to reduce your taxable income, to take home more of what you earn.
Whether you work full time, part-time or casual, you could benefit from salary packaging to:
Pay less tax: Because expenses are paid for from your pre-tax salary
Make your salary go further: By paying for necessary items with your pre-tax dollars, you increase your take home wage
Take advantage of car savings: If you salary package your car through a novated lease, car maintenance and running costs can be reduced. You’ll also be able to a better vehicle
What are you allowed to salary package?
Most general living and everyday expenses can be salary packaged, if approved by your employer. Mortgage and rental payments, personal loans, school fees or credit card repayments are also available to not for profit and health workers to be salary packaged.
Other expenses you can salary package are your superannuation, insurance, work equipment such as laptop or office setup, vehicle through a novated lease or child care fees. HECS and other education fees, mobile phone plans, car registration, groceries and utility bills can also be salary packaged.
Is there a difference between salary packaging and salary sacrifice?
No. A salary sacrifice car is another name for salary package car.
Whether it’s a ‘package’ or ‘sacrifice’, it’s an arrangement that is the same between you and your employer.
How much can you salary sacrifice?
The amount you contribute from your pre-tax salary depends on the type of employer you work for. Fringe Benefits Tax (FBT) limits, caps or thresholds may also apply.
However, as a guide; hospital and ambulance services can salary sacrifice up to $9,010 of their pre-tax salary. All other employees or not-for-profit staff can use up to $15,900.
A maximum of $2,403 can also be packaged for rebatable meals and entertainment, or $2,650 for meals and entertainment for not-for-profit and hospital employees.
Is salary packaging tax deductible?
Yes. Salary sacrificing is a tax deductible expense.
If you’re a business owner and make salary sacrifice contributions to your employee’s super, you may also claim deductions.
For more information about how Easi can help your salary packaging questions, contact our team. Want to read up on more? Follow our blog for the latest tips with novated leases, salary packaging and fleet management.
