When negotiating an employment contract you may come across the term “salary packaging”. This refers to an arrangement between you and your employer, where your employer pays for certain items or services directly from your salary before tax. These expenses can include cars and superannuation.
What is salary packaging?
This refers to an arrangement between you and your employer, where your employer pays for certain items or services directly from your salary before tax.
The good thing about salary packaging is that it can lower your taxable income, giving you more money for other things. Your employer then has to pay Fringe Benefits Tax (FBT) on the benefits they have provided to you.
Here are some things that you need to know about salary packaging:
- To be effective, your employer needs to set up salary packaging before you start work.
- You can have this arrangement if your employer is open to offering benefits. It varies depending on the employer. Some may offer salary packaging into superannuation, while others may limit employees to other benefits.
- Make sure that you discuss the terms of the arrangement with your employer thoroughly. The contract is usually made in writing, but it can also be in verbal form. Bear in mind that it may be challenging to get the facts straight if you don’t have documentation.
- You can renegotiate your salary packaging arrangement when you renegotiate your contract of employment. You can also renegotiate the amount of salary to be packaged before the start of every contract renewal.
- The employment contract should cover the details of your remuneration as well as the salary packaging arrangement.
- Your employer needs to pay the fringe benefits tax on the benefits that are provided to you. You will find the list of these benefits on your end-of-year payment summary. It is also used to calculate your Medicare levy surcharge, government benefits, tax offsets, and payments for child support.
As well as cars and superannuation, items you may be able to salary package include loan repayments and school fees.
Benefits that your employer can provide without incurring fringe benefits tax include portable electronic devices, an item of protective clothing or computer software, briefcase or a tool used in trade.
These are just some of the things worth knowing about salary packaging. You may want to seek tax advice from a qualified individual so you will better understand the ins and outs of this arrangement.
Do you have other ideas on salary packaging and income tax in Australia? Share your insights in the comments section.