Salary Packaging
Why Commence Salary Packaging?
11 May 2011
Salary Sacrifice - "Get instant rewards"
Salary sacrificing involves forgoing part of the cash salary from your employer for the provision of other benefits. In order to be effective, a salary packaging arrangement can only be positive, that is, you can only effectively sacrifice salary you haven’t yet earned. This means the lead up to 30 June is an appropriate time to review salary packaging opportunities.
Benefit items are determined by your employer and can include:
- Novated leasing of a motor vehicle; &
- Additional superannuation
Salary Sacrifice Superannuation Contributions
Making salary sacrifice superannuation contributions will increase your superannuation savings whilst also reducing your tax payable. The example below outlines the benefits of undertaking salary sacrifice in the form of superannuation contributions.
Example: John earns an annual salary of $80,000 per annum (excluding his employer's super contributions) and is considering salary packaging additional superannuation. By choosing to salary package an additional $10,000 into his superannuation, rather than paying for it from his post-tax salary, John could increase his net disposable salary by $3,150 per annum or $121 per fortnight.
| Not Packaging | Salary Packaging | |
|---|---|---|
| John's Annual Salary | $80,000 | $80,000 |
| Additional Superannuation Payments (packaged pre-tax) | $0 | -$10,000 |
| John's Taxable Salary | $80,000 | $70,000 |
| Tax and Medicare Levy | -$18,750 | -$15,600 |
| John's Post-Tax Salary | $61,250 | $54,400 |
| Additional Superannuation (paid post-tax) | -$10,000 | $0 |
| John's Net Disposable Salary | $51,250 | $54,400 |
| JOHN'S ESTIMATED ANNUAL BENEFIT | N/A | $3,150 |
Who benefits from salary sacrificing to super?
This strategy is available for any employee whose employer offers salary packaging arrangements. If you’re unsure if this is available to you, contact your employer’s Human Resources department to see what salary packaging arrangements are available and what (if any) rules are in place regarding the arrangements.
The following list outlines some of the benefits government employees can salary package:
- Education expenses;
- Home mortgage repayments;
- Utility payments;
- Work related travel;
- Private travel; &
- Membership fees
If you would like to explore the opportunities with salary packaging please do not hesitate to contact us at Sherrin Partners
Warning: This document contains general information about the benefits, costs and risks associated with certain product classes and strategies. It is designed for use in conjunction with a Statement of Advice that takes into account the circumstances and objectives of an individual. Before making a commitment to purchase or sell a financial product, you should ensure that you have obtained an individual Statement of Advice.