Are you taking advantage of your salary packaging options?

Salary packaging is where you ask your employer to direct a portion of your salary towards an item before income tax is applied. The benefit of doing this is simple – it allows you to pay for an item with pre-tax dollars, meaning the item may be tax free as a result.

Salary packaging is also referred to as salary sacrificing (e.g. salary sacrificing to superannuation). Salary packaging/sacrificing to superannuation is available to most employees, however, some employees have the opportunity to package other items as well.

For instance, if your employer is classified as a Public Benevolent Institution (PBI), you may be able to salary package additional items. According to the Australian Tax Office (ATO), a PBI is:

‘a non-profit institution whose predominant purposes and activities are the direct relief of poverty, sickness, destitution, suffering, helplessness, or misfortune for those arousing compassion in the community.’

PBI’s often include public hospitals and the ambulance service, emergency service providers (e.g. fire brigade), some charities and surf lifesaving associations, but other institutions may qualify too.

If you are employed by a PBI, you are able to take advantage of salary packaging arrangements that are not offered to other employees. Specifically, you can salary package up to $9,095 each year if you are employed by a PBI.

But what does this really mean?

As an example, you could ask your employer to direct $9,095 of your salary towards repaying your mortgage (or paying your rent for that matter). By doing this, you could save up to $4,093 in income tax every year.

Over an average mortgage term of 25 years, this equates to a substantial $102,325 in tax savings.

To determine whether your employer is a PBI, simply ask them. If they are, we’d then recommend you seek advice from an expert before going any further.

Salary packaging (and the tax rules associated with it) is complex and as such, your financial situation and objectives need to be considered before engaging in any salary packaging arrangement.