Salary packaging (also called salary sacrifice) is an arrangement where your employer pays for certain expenses out of your pre-tax salary, rather than you paying for them from your take-home pay. Because the expense comes out before income tax, your taxable income is lower.
What Can Be Packaged
What you can package depends on your employer and the tax rules that apply to them. Common examples:
- Cars through a novated lease
- Extra superannuation contributions
- Portable work devices such as laptops and phones
- Everyday living expenses, meal entertainment and venue hire for employees of eligible hospitals, charities and not-for-profits, which have special fringe benefits tax concessions
Fringe Benefits Tax
Some packaged benefits attract fringe benefits tax (FBT), which your employer pays and usually passes back to you in the package. Whether packaging saves you money depends on how the benefit is taxed. Some items are exempt or concessional, others are not.
Things to Check
- Reportable fringe benefits can appear on your income statement. They do not change your income tax, but they can count towards income tests such as HECS/HELP repayments, family payments and the Medicare levy surcharge.
- Administration fees charged by the packaging provider
- What happens if you change jobs, particularly with a novated lease
Salary Packaging and Home Loans
Lenders look at packaged income differently. Some lenders count packaged benefits as income, and a novated lease repayment is treated as a commitment. If you are about to apply for a home loan, tell your broker about any salary packaging so they can choose a lender that treats it well.
Tax rules change, so confirm the details with your employer's packaging provider or the ATO.