vivalasvegan

Hiya guys,

What exactly does salary packaging mean?

I'm looking for jobs online and lots of the terminology is strange and alien...

Is it a good thing or a bad thing??

Must be good I suppose...

Cheers....

Vivalasvegan

Peter

Usually means wages + perks, such as company car, RDO's, etc.

mlbonner

yup - same as 'salary + benefits' or 'renumeration package' as far as I'm aware

Grayling

It also has some tax benefits as some of these things are written off as part of your salary and not taxed as 'perks'.

No expert though. It is usually available for persons such as Nurses etc. as an added attraction to work in a relatively poorly paid job.

G

MrsDagboy

That part is not necessarily true in Oz, most high paying white collar jobs here come with a salary package.

It quite often includes things like car or travel allowance, health insurance, car parking, extra superannuation, share schemes & other perks.

Depending on whats included it can add up to a sizeable amount.

Grayling

Thanks Mrs. DB
I was not aware of that.

Can you explain it all as I know very little about it?

Best wishes

G

mary1

It also means your employer can reduce your taxable income by paying part of your pay directly into eg your super fund or even mortgage before tax.

Vicky88

If you salary sacrifice into super the money is only hit by 15% upfront super tax (except for high income earners) vs what could be the normal 48.5% including medicare levy.

ABCDiamond

Don't salary sacrifice into super if you are on less than about $53,000.
You are better of going for the co-contribution instead. This is where the Government tops up your super.
eg: On $30,000 a salary sacrifice of $1,000 will get you $1,241 into super.

However, by putting that same $1,000 into your own fund, and having the co-contribution, you end up with $2,400 going into your super fund.
The NET advantage after tax ends up at being $1159 better of

It does need looking into for individual circumstances.

look up "super co-contribution" in google

This is the ATO web page for it, but also see the 2004-2005 planned changes.

Alan Collett

It means that the cost to the employer of an employee's package of salary and benefits (including superannuation contributions - super contributions by employers are required in Australia) is the same, but the net amount received by the employee is optimised, principally because certain benefits are not fully taxed when provided by an employer.

This webpage might help:
http://www.seek.com.au/editorial/0-2..._sacrifice.htm

Best regards.

renth

ABC, another solid gold contribution. Thanks!

Isn't the figure $40k though?

I'm busy sorting out salary packaging my Uni. gym membership, super, car parking etc...

There is fringe benefits tax to pay though if the value of the salary packaging exceeds $500 a year, isn't there?

RichS

I can try to highlight with the purchase of a car:

Lets say you earn $100,000 (yes I wish).
Of that amount, anything you earn over $62,500 will be taxed at 48.5%.

Now here's where salary packaging comes in. You get hold of your car on a 3 year lease. Your company will calculate the repayments per month. The amount calculated will include repayments on the actual lease, wear+tear, Rego, petrol etc. In other words every cost associated with running the car (you'll typically have a company credit card dedicated to the running of the vehicle).

Now what you do is take that money off of your taxable income. It attracts tax at a lesser rate, dependent on how many kms per year you clock up - the farther you go the less tax you pay.

Packaging can also be used to add extra contributions to Super, purchase laptops etc. The theory being, if you can manage it that you would use all income above 62,500 in packaging, thus never actually attracting the 48.5% tax rate.

ABCDiamond

It is $40,000 this year, but it is going up on July 1st to $58,000.
However the break point comes in at $53,180, and after that figure salary sacrifice is better.

I haven't looked at FBT for ages ! But yes, I assume that will apply somewhere.

For those who havent heard of this:
ATO - Fringe Benefit tax

ABCDiamond

salary-sacrificed superannuation contributions are classified as employer superannuation contributions (not employee contributions) and are taxed in the superannuation fund under tax laws dealing specifically with this subject.

Fringe benefits tax and salary sacrifice arrangements

MrsDagboy

Grayling, I dont think I need to explain, other people have done alot better job than I probably could . Dagboys package includes those things I mentioned, plus a few others & from memory its worth about $30k, so its not chickenfeed.