Your Money

What’s in the package?

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Want to know about a really smart money play where you can save a load of tax and wind up with some nice goodies? Well, I’m talking about salary packaging. Many of us might know it as something high-flying executives use for fancy cars, but research indicates approximately 50 per cent of Aussie companies will play the game with any of their employees.

Good things come …

By the way, salary packaging involves a lot more than just cars. It extends to superannuation, electronic devices and even smart, upmarket Prada briefcases!

What’s the story?

Salary packaging lets employees use gross or pre-tax income for benefits to bring down their regular tax bills and, ultimately, increase their income.

It does require the approval of your boss which you have to arrange through your paymaster, because it does affect your tax payable.

Ironically, falling tax rates are not a great help to salary packaging, but the remuneration experts still see it as a rewarding tax trick.

Open it up!

To whet your appetite, let’s consider the long list of things you could look at with salary packaging.

We can start with car leases, superannuation, health insurance, laptops, loans to buy shares, staff meals, taxi trips, mobile phones, blackberries and any equipment that clearly has a business use. 

The FBT terror!

There is a tax catch that you should be aware of and that concerns that nasty killjoy slug called the fringe benefit tax (FBT).

Many of these salary packaging items attract no FBT, while others have a concessional rate. However, some bosses will include the likes ofgym membership and health fund membership.

Taxi!

On the no FBT benefits you could consider taxi trips from home to work each day and there are no time restrictions on this nowadays. However, you are supposed to travel alone. The total value of these trips could be packaged up to make the cost of getting to and from work cheaper via the tax benefit.

Listen to the music

While IPods attract FBT, the extended family of mobile or smartphones avoid the FBT tax trap, despite their obvious business uses. There are some rules to note, such as you can only have one laptop a year, but you can have more than one phone or personal digital assistant (PDA).

Other items

An interesting one that could be packaged are meals at a staff cafeteria. And while there is a limit per day over the year, it can add up to be a pretty good saving.

Another one is the arrangement where a company provides for staff loans for share purchases in their own company. These are FBT-free, and if the share price heads in the right direction, it could be a real beauty.

In the driving seat

To the more conventional packaging – the car lease can be a nice deal worth driving a hard bargain for with your boss.

It is worth pointing out that one size does not fit all with car leasing, the tax benefits and the individual circumstances of the employee need to be considered.

Experts say the tax benefits can include being able to claim interest and running costs plus part of the depreciation as deductions.

It is a good idea to compare the tax expenses you can claim through a salary packaged lease to buying the car yourself. This often makes the case for a car lease.

While not the only option, many employees use a novated lease, which is a three-way agreement between a leasing company, your boss and you (the employee). The employee leases the car, but the employer pays the lease.
You own the car and have the right to take it with you get a new job.

A super idea

Salary sacrifice is another great pay innovation worth considering. Here, the deal is you decide to take a portion of your gross pay and slam it into your super fund.

If you are currently taxed at 46.5 per cent, by switching some of that money into super, you only get hit by a 15 per cent tax. This can really turbo charge your accumulated nest egg growing inside your super fund.

Many mid-40 to 50-year-olds have used this to turn a sick looking super amount into something more respectable for the time when they retire.

On the home front

Another clever salary sacrifice trick might be to turn your home loan into an interest-only loan to reduce your repayments and then take the money you save and ramp up your salary sacrificed.

All of these tax tricks show the value of plenty of homework or a damn good tax adviser.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, February 09, 2012

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