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Circumstances differ for all

WHILE packaging can be advantageous, it is not always the best option, even for high-income earners.

Deloitte’s Geoff Webb said the suitability of packaging depended on the financial circumstances of each individual, and even their lifestyle preferences.

For instance, if an individual’s short-term financial goal is to pay off their mortgage, then boosting super contributions may not be appropriate.

Or if an individual lives close to work and already owns a car, then packaging a new car may provide little, if any, financial benefit.

Some individuals may prefer to maximise their cash income and then use other strategies, such as negative gearing or ‘tax effective’ investments, to reduce their tax bill.

A potential drawback of packaging is that the employer-funded 8 per cent super guarantee contribution may be reduced, since the 8 per cent would normally be based on assessable salary.

However, Mr Webb said some employers will calculate the 8 per cent on the full value of a salary package.

An important proviso is that, in order to secure the tax benefit of packaging, the arrangement must be finalised in advance. If a person receives an end-of-year bonus, for instance, they cannot decide afterwards to convert the bonus to an alternative non-cash benefit.

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