Have you heard of salary packaging but aren't sure what it is or how it works? Salary packaging, also known as salary sacrifice, is an arrangement where you agree to receive less take-home pay from your employer in return for benefits of a similar value. This can be a smart way to reduce your taxable income and make your money go further.

An effective salary sacrifice arrangement (SSA) must be entered into 

before you become entitled to the payment. This means you can't package salary or wages you have already earned.

How Does Salary Packaging Work?

By packaging certain benefits, you pay for them with your pre-tax dollars, which lowers your taxable income. The main benefit for employees is the tax savings, which can be substantial.

What Can Be Packaged?

Almost anything can be packaged, but the most common and effective items are those that are either exempt from Fringe Benefits Tax (FBT) or receive concessional FBT treatment. These include:

• Superannuation: Making additional contributions to your superannuation is a popular and tax-effective salary sacrifice option.

• Motor Vehicles: A novated lease on a car is a common salary packaging benefit.

• Work-Related Items: Items like laptops, mobile phones, and tools of the trade can often be packaged FBT-free.

• Exempt and Rebatable Employers: If you work for a not-for-profit organisation, such as a public hospital or charity, you may be eligible for even greater salary packaging benefits due to FBT exemptions or rebates.

Is Salary Packaging Right for You?

Salary packaging is most beneficial when the tax savings outweigh the cost of the benefits. While it's often more advantageous for higher-income earners, employees on lower incomes can also benefit, particularly if they work for an FBT-exempt or rebatable employer.

It's important to understand that salary packaging can affect other aspects of your finances, such as your eligibility for government benefits or your HELP repayment obligations, as the grossed-up value of fringe benefits is reported on your payment summary.

A financial planner can help you determine if salary packaging is a suitable strategy for you and design a package that maximises your benefits.

General Advice Warning:

The information provided in these articles are of a general nature only and do not take into account your individual objectives, financial situation, or needs. You should consider whether the information is appropriate for you, having regard to your personal circumstances. Before making any financial decisions, we recommend consulting a licensed financial adviser to assess your specific needs and circumstances.