Salary packaging is where an employer and employee agree that the employee’s remuneration package will be received by way of a combination of cash salary and non-cash benefits. Anyone who is employed, and has approval, is able to salary package and potentially save thousands of dollars each year. Instead of receiving a gross income, on which income tax is payable, employees can choose to take part of their pay in some other form of benefits before income tax is applied. These are known as employer-provided benefits.

Salary Packaging is a way of restructuring your income to reduce the amount of tax that you pay. Approved by the Australian Tax Office (ATO), Salary Packaging means you can pay certain expenses out of your salary before you pay tax. This means the tax you pay is calculated on your reduced income after the nominated expenses are paid.

What are the benefits of Salary Packaging?

Salary Packaging enables you to save money when you buy a car through a Novated or Associate Lease. Depending upon your employer and the industry you work in, you may also be able to pay for a range of everyday items or expenses using your pre-tax dollars e.g. your electricity bill, utility accounts, home mortgage or rental repayments and many more.

There can be significant financial benefits when Salary Packaging, however it does depend upon the person’s individual situation and the benefit varies from person to person.

How does Salary Packaging work?

A carefully calculated amount, based on the benefits you are entitled to, is deducted from your taxable income and moved to a trust account (managed by an Administrator). The tax you pay is then assessed on your reduced taxable income after the deduction, lowering the tax you pay.

You initially pay for the expenses upfront and are then reimbursed for your selected Salary Packaging items using the funds from your Salary Packaging account. Depending on your Employers status and the benefits that they offer, the funds can be used to pay for a variety of different expenses such as a Novated Lease, and possibly Rent/Mortgage, Electricity and other costs.

Additional Information

Every Organisation holds a FBT (Fringe Benefits Tax) Status which their employees may be able to access for Salary Packaging purposes.

Employers can allow their employees to access various benefits depending on both the company’s status and also their company policy.

Depending on their status, some Organisations (eg: hospitals and charitable companies), can access benefits that are exempt from FBT (Fringe Benefits Tax), these are referred to as an ‘exempt benefit’.

Smart Wealth Financial Solutions is a company providing financial advice including salary packaging advice to many employees who are fortunate enough to work for organizations that include packaging as part of their remuneration agreements.  This can include Queensland Government Employees, a large number of Not for Profit Organizations, and mining companies. 

Most companies that offer salary packaging as part of their remuneration structure including the Queensland Government strongly recommend that all employees seek independent financial advice prior to participation in Salary Packaging Agreements.