Key Benefits of Salary Packaging
What exactly is salary packaging?
The Australian Taxation Office allows restructuring of one’s income in such a manner that the pre-tax salary can be used as disposable income. This arrangement is known as salary packaging.
It is popular as it results in lesser amount being left as taxable income and therefore brings greater savings.
Is salary packaging popular in Australia?
Yes many individuals are benefiting after getting their salary packaged. Employers are increasingly offering non-cash benefits.
In the traditional scenario the employees get their salary paid after the tax has been deducted. The balance amount may be spent or saved. In this arrangement the expenses happen before the tax is deducted ensuring lesser taxable amount and therefore lesser tax.
One of the most common salary packaging services is salary sacrificing into super. That is the employee can have more than the mandatory (9.5%) amount being saved into the nominated superannuation fund. This would result in higher savings for retired life.
What are the key advantages of salary packaging?
The key advantages of salary packaging are:
1. Higher take home pay
2. Lower taxable income
What all gets covered under salary packaging?
Salary packaging allows employee to choose from a variety of things to do. These include saving it up, buying or managing an item for everyday use or something luxurious.
How does Salary Packaging work?
Salary packaging is also known as salary sacrifice. This is an agreement between the employer and the employee where the former allows non cash benefits for the latter and may be liable for Fringe Benefits Tax on some of these.
What all usually gets packaged?
Variety of things can be salary packaged. The key categories include: Fringe Benefits, Superannuation and Exempt Benefits.
Fringe Benefits can include any of these items:
• Cars
• Car loans
• School fee
• Childcare fee
• Health insurance
• Other personal expenses
It is advantageous as the employee wouldn’t have to pay any taxes or medicare levy on the above mentioned. These do feature on the payment summary. On the other hand benefits like car parking and entertainment are fringe benefits that are non-reportable and do not feature on the payment summary.
Then there are the Exempt benefits where even the employer doesn’t have to pay any tax. These items include:
• Electronic device (portable)
• Computer software
• Briefcases
• Tools of the trade
• Protective clothing
Then there is the salary sacrificing into superannuation. This too doesn’t entail tax liabilities for the employer. Therefore it is beneficial for the employer as well as the employee to divert more pre-tax income towards superannuation.
What is a salary packaging year?
A salary packaging year starts from 1st April till 31st March of next year.
Can salary packaging arrangement be in retrospective?
No, salary packaging arrangement must be in place before the income is earned.
Does Independent Payroll Solutions offer salary packaging services?
Yes, we do. Please feel free to contact IPS via email or phone regarding any further details.