BDO tax director Mark D’Angelica said salary packaging is “an ATO-approved way of increasing your take-home pay” by using a portion of your pre-tax salary to pay for some items that you’d normally pay for with your after-tax pay such as cars, superannuation or electronic devices. Your tax is then calculated on the remaining amount.

“Where it’s most effective in terms of increasing your take-home pay is if you work for an entity that it’s either exempt from fringe benefits tax or it’s a rebatable fringe benefits tax employer,” D’Angelica said.

“The idea behind [salary packaging] is to try and attract talent to work for public benevolent institutions and also charities.

“It’s just an extra benefit that you get from working for those sorts of organisations that are obviously having a positive impact on society.

“More senior people within organisations have the potential to save more by doing salary packaging because they’re earning more – the higher your effective tax rate is, the more you’ll end up saving.”

Normally once salary packaging is set up, it continues until you finish working at the organisation, but you must remember to complete FBT declarations on an annual basis, with the fringe benefits tax year running from April 1 until March 31.

What can you salary package?

An important requirement is that a salary packaging arrangement must be made in advance. You can’t salary package money you’ve already been paid.

Workers in public health, not-for-profits or charitable organisations have a wider range of salary packaging benefits and can also include things like rent, mortgage payments and credit card expenses.

Who can salary package?

Generally, those in the public sector working for public benevolent institutions, as well as not-for-profits or charities. The largest employer in South Australia is the South Australian Government, therefore there’s a significant number of South Australians working in hospitals and such who are eligible for salary packaging but may be unaware of its benefits.

Whether salary packaging is right for you depends on your personal circumstances. You can get tailored advice from a financial advisor, and some employers and super funds provide advice, too. For more details about salary packaging, see salary sacrifice arrangements for employees on the Australian Taxation Office (ATO) website.

Salary packaging superannuation

If you’re looking to buy your first home or boost your retirement savings, putting some of your pre-tax income into super can be a great option. Superannuation contributions are taxed at 15 per cent, which is much less than the 32.5 per cent that most people pay.

The First Home Super Saver Scheme allows first home buyers to withdraw up to $30,000 in voluntary super contributions to put towards their first home (this will increase to $50,000 from 1 July 2022), as well as the interest earned on this amount. But if you don’t end up using the money for your first home, you will have to pay a special tax to access this money or wait until you have retired.

Traps for packaging superannuation

The limit for super contributions from your pre-tax salary is $27,500 per year and this includes any contributions your employer makes.

The First Home Saver Super Scheme has strict rules about how much money can be withdrawn and what the money can be used for. It also takes some time to withdraw the money.

Can you salary package a car?

Purchasing a car and salary packaging the finance and the running cost is another popular option and is also known as a novated leasing. You choose the car, and your employer takes the repayments and running costs out of your salary. This payment is often a combination of pre-tax and post-tax funds so remove any Fringe Benefits Tax liability.

Purchasing a car this way can result in thousands of dollars of savings over the life of the lease so it’s important to consider both the total cost and the savings when deciding the car to buy.

The tax savings can make an electric vehicle considerably cheaper than a non-EV with a similar purchase price because eligible EVs are exempt from fringe benefits tax financed through a novated lease.

Traps for salary packaging a car

Although you don’t have to pay anything upfront, you have to pay a lump sum to keep the car at the end of a novated lease and the more expensive the car the bigger the lump sum will be. It’s important to bear this in mind when choosing your car.

Can you salary package laptops and phones?

Depending on your job and your employer, you might also be able to pay for a laptop, phone or other electronic device out of your pre-tax income.

­­­­­­­­­­­Traps for salary packaging a laptop or phone

The device needs to be portable. Laptops and phones can be included but you can’t package a desktop computer.

The device needs to be used mostly for business purposes (over 50 per cent and this may need to be verified by your employer).

Not all employers offer this benefit so it’s best to check with your employer first.