What is Salary Packaging?
Salary Packaging is a great employee benefit that is available to all businesses and is fully approved by the Australian Taxation Office.
It allows employees to pay for certain items with their pre-tax (the money before tax), which means employees will pay LESS TAX, resulting in increasing their take home income.
The aim of salary packaging is to enable an employee to receive a combination of income and benefits in a tax-effective manner.
Salary Packaging Benefits, especially when done in a sustainable and ethical way, are now more than ever, an important part of remuneration.
How Does Salary Packaging Work?
The key to tax-effective salary sacrifice is for the employee to take some of their remunerations in the form of concessional taxed benefits instead of taking it all as a fully assessable salary. This procedure is called “Salary Sacrifice” because the employee sacrifices part of their salary in return for the desired benefits.
Reduces the tax you pay, which increases your take home pay
When an employee gets paid, there can be numerous deductions that get taken out of their pay before tax is calculated. These deductions usually include things like voluntary payments to super, or salary sacrifice items.
Once these amounts have been deducted from your gross pay, the government then calculates the tax payable. The smaller the amount you have earned, the smaller the amount you are taxed. Using pre-tax dollars to buy things saves you money by reducing the amount you are taxed.
It is money that is left after paying income tax. You pay maximum income tax on your Post Tax Money.