The Pros and Cons of Salary Packaging

Salary packaging offers many advantages. There can also be a few pitfalls. Below are some of the good arguments in favour of talking to your employer about salary packaging options, as well as a few cons and caveats to know about.

The Pros:

  • Depending on your salary, you can save hundreds or even thousands of dollars each year.
  • Salary packaging reduces your overall taxable income, and therefore, your taxes. This means more disposable income for you.
  • Anyone can participate in a salary packaging arrangement, provided they are earning over $18,200 per year and that their employer approves this program.
  • Almost all employers will, at least, allow the most basic form of salary packaging – salary sacrificing into a Super Fund, which has a cap of $25,000 for the next year.
  • By purchasing items through an employer packaging program, you can benefit from the lower prices resulting from ‘buying in bulk’.
  • By Salary packaging, you are also saving money on GST.
  • Your packaging program may provide access to convenient payment cards for things like meals and entertainment, which also make it easier for you to track your spending.
  • You can save on PAYG (pay as you go) taxes, keeping more cash in your pocket along the way.
  • If you’re employed by a NFP (Not for Profit) Organization, your Fringe Benefits Tax (FBT) discount rate is 48%.
  • If you are employed by a public hospital you can package up to the Cap and get a Meal entertainment card
  • Automobiles, work expenses such as mobile phones, software and protective uniforms, can be applied to salary packaging.
  • If salary sacrificed super contributions are made to a complying super fund, the sacrificed amount is not considered to be a fringe benefit; thus you can be growing your Super Fund while saving on taxes and Medicare.

The Pros Specific to Car Ownership

  • By partaking in an employer’s salary packaging program, the cost of owning a car can be reduced dramatically.
  • For starters, you can benefit from bulk purchasing prices, saving up to thousands of dollars. You will also save some GST.
  • You can receive significant discounts on things like fuel (paying less than $1 per litre) and tyres (up to 25% off).
  • When needed, your car can be serviced at fleet rates. Your fleet company also manages the budget, so there’s no need to outlay cash.
  • Similarly, you won’t need to fund a big payment for insurance renewal or for Rego.

The Cons:

  • Salary packaging can be hard to understand.
  • If not properly managed, you may incur a FBT liability.
  • Exceeding your super’s concessional cap can mean paying higher taxes (withdrawing excess contributions can help to offset this).

The Caveats

  • Salary packaging agreements must be made in writing and they must be signed and commenced prior to your receiving income.
  • It is important to stay on top of changing regulations, particularly on concessional contribution caps, as these have recently changed, so as to avoid being assessed fees and penalties.
  • Some employers, to recover FBT costs, may try to find a way to pass them on to you. For example, your superannuation amount may be lowered by your employer by basing it on your actual cash income, as opposed to taking your whole base salary package into account.

As you can see, there is a lot of information you should comprehend when it comes to salary packaging. Here at easifleet, we are always happy to answer any questions you may have and will be more than happy to put you in touch with our sister company – easisalary for further help.

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