Salary packaging (also known as salary sacrificing) is an ATO-approved method that allows employees in the not-for-profit sector to reduce their taxable income on specific expenses. The great news is that working in the not-for-profit industry can make you eligible to salary package and save on a wide range of everyday expenses.
Salary packaging is a smart way to give yourself a pay rise. The result? You pay less tax and have more money in your pocket. I use it myself, and it’s amazing to see how much further your money can go. Imagine having more cash each month without needing to ask for a raise!
I’m going to explain everything from my personal experience in Australia, so you can take advantage of this great opportunity and maximize your income just like I did.
How Does Salary Packaging Work?
Simply put, salary packaging, or salary sacrifice, is when you agree with your employer to give up part of your salary before taxes are applied. This means you receive less taxable income, and in return, your employer pays for certain benefits with the pre-tax portion of your salary.
Let me explain with my personal example:
I earn $100,000 a year, and I decide to sacrifice $15,000 for salary packaging. My taxable income is now reduced to $85,000 ($100,000 minus $15,000), so I only pay taxes on that $85,000. However, I still have $15,000 available that hasn’t been taxed. The key is that this $15,000 must be used entirely for eligible benefits, which, in my case, goes towards paying the rent for my apartment.
By doing this, I reduce the amount of tax I pay, effectively increasing my disposable income.
How Much Could You Save by Salary Packaging?
Now that you know what salary packaging is, it’s time to address the key question: How much could I save through salary packaging?
For employees of not-for-profit organizations:
- You can salary package up to $15,900 per year on certain benefit expenses.
- You can also salary package up to $2,650 per year on meals and accommodation expenses.
For employees of for-profit organizations:
- You can salary package up to $9,009 per year.
- Additionally, you can salary package up to $2,650 per year on meals and accommodation expenses.
As you can see, the salary packaging thresholds are fixed, and it’s up to you to request salary packaging up to the ‘cap,’ meaning you use the maximum amount allowed. Regardless of your salary or job, these limits are established for everyone. By maximizing your salary packaging to these caps, you can significantly reduce your taxable income and save more money each year.
What Can You Include in Your Salary Packaging?
When it comes to salary packaging, there are a variety of benefits you can claim. Salary packaging allows you to use pre-tax dollars to cover eligible expenses, reducing your taxable income and potentially saving you money. But what exactly can you include in your salary packaging?
Below, we break down the most common salary packaging benefits so you can understand what you might be able to claim and how it could help you maximize your income.
The Best Salary Packaging Providers in Australia
To take advantage of these salary sacrifice benefits, you’ll need a Salary Packaging provider. Here’s a list of the top providers to help you get started:
