Salary Packaging is a great way to increase your take home pay by reducing the amount of PAYG tax paid from your salary, that’s extra money you wouldn’t normally have. There may however be some circumstances where you will need to report a higher income to the government.
At the end of each financial year, the payment summary you receive from your employer will show your total earnings which may include salary and reportable fringe benefits. It is important that you report the reportable fringe benefits to the ATO as well as the relevant Government agencies (Centrelink, Child Support, HECS/HELP, etc.).
The reportable fringe benefits differ from your regular salary in that they are the “grossed up” amount of what you have salary packaged. The “grossed up” amount is the amount salary packaged, multiplied by 1.8868 (gross-up factor).
What this means is that if you salary package $9,010 for the year, your grossed up amount will be $17,000 ($9,010 x 1.8868).
Here’s an example:
David’s gross salary is $50,000 per year and he salary packages $9,010 towards his mortgage and $2,650 onto his entertainment benefit card.
He is only taxed on his remaining salary which is $38,340, meaning he saves around $3,700 per year in tax.
For reporting purposes, his reportable salary becomes $60,340 ($38,340 taxable income + $22,000 reportable fringe benefits) and this is the salary which is assessed by the relevant Government agency.
Eastern Health as a Public Hospital is FBT Exempt under section 57A of the Fringe Benefits Assessment Act 1986. What this means is Centrelink payments including Family Tax Benefits will not be affected by salary packaging, although you still need to let Centrelink know your income and salary packaging amounts.
In order for Centrelink to correctly assess the salary packaging amount, employees must advise Centrelink that Eastern Health are FBT Exempt under section 57A of the Fringe Benefits Assessment Act 1986. Centrelink will then adjust this figure down to the "cash" value in their assessable income calculations, rather than the “grossed up” amount
Employees must contact Centrelink directly to update, if you do not advise Centrelink the default will include your full Reportable Fringe Benefits calculation.
Eastern Health Salary Packaging can assist you with this information if required.
For employees with a HELP debt, it means that you must use some of the extra take home pay towards reducing your HELP debt. The good news is that you’ll be putting the extra contributions into paying off your tuition faster, rather than giving it away to the tax man (you’re basically using the ATO’s money to pay off your HELP debt).
You must notify payroll in writing (via email) the additional amount per fortnight that you would like to set aside for your HELP repayments.
Please see below the HELP Debt Information Sheet to assist you to calculate the additional funds to put aside for your HELP debt, or you can contact the Salary Packaging team to assist in the calculation.
All other benefits
For all other benefits, speak with the relevant agency. Just keep in mind that the tax savings you can receive will usually outweigh any potential impact to your benefits.
Salary Packaging is a voluntary program and your arrangements can cease at any time. We encourage all employees to seek financial advice based on their personal circumstances and the tax benefit achievable.