How salary packaging works
Salary packaging lets you pay for certain expenses from your pre-tax salary instead of your after-tax pay. Because the money comes out before income tax and the Medicare levy, you save your marginal rate on every dollar you package, up to a cap set by the tax office. It is the same idea as salary sacrificing into super, applied to everyday costs like your mortgage, rent or bills. You agree the arrangement with your employer before you are paid, so it needs a little planning.
Who can salary package everyday expenses
This kind of packaging relies on your employer’s Fringe Benefits Tax status, so it is not open to everyone. It suits staff at public and not-for-profit hospitals, ambulance services, registered charities, public benevolent institutions and health promotion charities. Rebatable employers, such as some other not-for-profits, get a related concession with the same cap. Most private companies are not eligible, so their staff cannot package everyday expenses this way even though super and novated leases may still be on the table.
The caps: $9,010 and $15,900
There are two general caps. If you work for a public or not-for-profit hospital or an ambulance service, you can package up to about $9,010 of expenses tax-free each FBT year. If you work for a charity, public benevolent institution or health promotion charity, the cap is about $15,900. These come from the grossed-up FBT exemption caps of $17,000 and $30,000, divided by the 1.8868 type 2 gross-up rate. The FBT year runs from 1 April to 31 March, which is slightly different to the income tax year.
Meal entertainment is a separate cap
On top of the general cap, eligible staff can package meal entertainment and entertainment facility leasing, such as dining out and functions, up to a separate cap of about $2,650 (a $5,000 grossed-up figure). Tick the meal entertainment box in the calculator to add it and see the extra saving. Novated car leases are packaged too, but they sit outside these caps and follow their own rules, so we cover them in a separate tool.
What to watch out for
The grossed-up value of your packaged benefits appears as a reportable fringe benefits amount on your income statement. It does not change your income tax, but it is added back when working out your HELP/HECS repayment, the Medicare levy surcharge and means-tested payments, so packaging will not usually cut your student loan repayment. Packaging providers also charge an administration fee that varies, so factor it in when you weigh up the saving. This tool is a guide, not personal advice, so confirm your caps and fees with your packaging provider.
Frequently asked questions
How much can I salary package?
It depends on your employer. If you work for a public or not-for-profit hospital or an ambulance service, you can package up to about $9,010 of everyday expenses tax-free each FBT year. If you work for a registered charity, public benevolent institution or health promotion charity, the cap is about $15,900. These are the grossed-up FBT exemption caps ($17,000 and $30,000) converted at the type 2 gross-up rate.
What is the $15,900 salary packaging cap?
$15,900 is the amount of everyday expenses that staff at charities, public benevolent institutions and health promotion charities can pay from pre-tax salary each FBT year. It comes from the $30,000 grossed-up FBT exemption cap divided by the 1.8868 type 2 gross-up rate. Hospital and ambulance staff have a lower cap of about $9,010, from a $17,000 grossed-up figure.
Does salary packaging actually save you money?
Yes, if you work for an eligible employer and pay tax above the tax-free threshold. You pay for things like your mortgage, rent or everyday bills before income tax and the Medicare levy come out, so you save your marginal rate on every dollar packaged up to the cap. On an $80,000 salary at a hospital, packaging to the $9,010 cap saves around $2,880 a year. Weigh that against the provider's admin fee.
What can I salary package?
Under the general cap you can usually package everyday expenses such as mortgage or rent payments, personal loan repayments, rates, utilities, groceries, insurance and school fees. On top of the general cap there is a separate meal entertainment cap of about $2,650 (a $5,000 grossed-up cap) for dining out and functions. Novated car leases sit outside these caps and follow their own rules.
What is the downside to salary packaging?
The grossed-up value of your packaged benefits appears as a reportable fringe benefits amount on your income statement. It does not change your income tax, but it can raise your income for HELP/HECS repayments, the Medicare levy surcharge and means-tested family payments. Providers also charge an administration fee, and you commit to an arrangement before you are paid, so it takes some planning.
Can I salary package if I work for a private company?
Generally no. Tax-free salary packaging up to these caps relies on your employer being FBT-exempt (public and not-for-profit hospitals, ambulance services, charities and public benevolent institutions) or a rebatable employer. Most private companies are not, so their staff cannot package everyday expenses this way, though items like super and novated leases may still be available.
Does salary packaging affect my HECS/HELP or family payments?
It can. Your compulsory HELP/HECS repayment is worked out on your repayment income, which adds back reportable fringe benefits, so packaging usually will not cut your student loan repayment. The same reportable amount is counted for the Medicare levy surcharge and for family assistance and other means tests. Your income tax saving still stands, but check these knock-on effects for your situation.
Is salary packaging the same as salary sacrifice into super?
They work the same way, you give up pre-tax salary for a benefit, but the rules differ. Salary sacrifice into super is taxed at 15% inside the fund and is available to almost everyone up to the concessional cap. Salary packaging everyday expenses relies on your employer's FBT status and lets you package up to the $9,010 or $15,900 cap tax-free. Many eligible staff use both.
General information, not financial advice. Salary packaging depends on your employer’s FBT status, confirm your caps with your packaging provider.
