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New salary packaging paradigm

SALARY packaging is a practice normally associated with high-income earners with executive cars and the latest laptop computers.

It is rarely associated with people earning $30,000 who include canteen lunches and motor vehicles in their salary package.

Paradigm Total Salary Management believes the scope for salary packaging is much wider than generally believed.

It has identified 15 categories of fringe benefits that can be packaged, well beyond the usual items.

Paradigm also believes that cars can be effectively packaged, even if the owner travels less than 25,000 kilometres.

The concept of packaging is very simple. It involves converting cash salary, which is taxable, into alternative benefits that are either tax free or taxed at a concessional rate.

The introduction of the fringe benefits tax in the mid 1980s dampened interest in packaging.

However, since 1989, the founders of Paradigm have been carefully scrutinising the tax rules to identify every possible opportunity for packaging.

The company also has developed a software product and bureau service that helps employers introduce and manage packaging arrangements and the associated tax compliance.

Paradigm sales manager Samantha Gilbertson said employers should look at packaging as a tool that enables them to attract and retain quality staff without having to pay higher cash salaries.

“For an executive on $100,000, we can deliver up to a $20,000 pay rise by converting a proportion of their cash salary into other benefits,” she said.

“For staff on $30,000 to $40,000 we can deliver a pay rise of $5,000.

“There is no cost to the employer. In fact, in most States there are substantial savings in the area of financial on-costs, such as payroll tax, workers’ compensation premiums and superannuation.”

Ms Gilberston said administration and compliance issues could be managed effectively if employers implement packaging the right way.

“It is crucial to have a system that automatically calculates the impact of packaging arrangements and is constantly updated to reflect changing tax rules. Otherwise, employers can get mired in time-consuming paperwork,” she said.

For individuals, packaging can deliver more than a lower tax bill. It also can reduce payments in areas like the superannuation surcharge, child support, HECS and the Medicare levy surcharge.

The following examples illustrate the benefits of packaging, with expenses like private meal entertainment, life insurance premiums, canteen lunches and airport lounge membership included in the package, instead of being paid by the individual from their after-tax income.

These also (below) assume that the individuals make after-tax contributions to certain benefits, such as running costs for the $22,000 car (and the car parking for the lower-income earner) in order to completely remove the fringe benefits tax liability.



SALARY PACKAGING EXAMPLES

Pre-Package Pre-Tax Salary $40,000

Unpackaged PositionPackage Position
Take home pay after tax$31,020$22,493
$22k car costs$(11,472)$(2,420) Contribution
Car parking$(3,420)$(1,364) Contribution
Accountants fee (tax deductible)$(75)$ 0
Term life insurance$(600)$ 0
Light lunches$(1,771)$ 0
Disposable Income$13,682$18,709
A gain of $5,027 or 18.3% pre-tax.

Pre-Package Pre-Tax Salary $100,000

+ $14,000 sacrificed super "on top"

Unpackaged PositionPackage Position
Take home pay after tax$64,120$39,956
$44k car costs$(15,762)$ 0
$22k car costs$(9,932)$ (4,400)
Meal Entertainment$(6,600)$0
Car parking$(3,420)$0
Accountants fee (tax deductible)$(75)$ 0
Airport Lounge Membership$( 605)$ 0
Laptop Computer$(3,300)$ 0
Disposable Income$24,501$35,556
A gain of $11,055 or 21.4% pre-tax

Source: Paradigm Total Salary Management

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