Salary packaging as an investment success contributor
We are all looking for investment success contributors. Salary packaging is one of the more accessible, and if used effectively, very successful.
Salary Packaging can lead to financial benefit
At the start of each new financial year we may reflect on how effectively we have utilised the financial resources available to us during the past financial year. In the process we often hear discussion about Salary Packaging. Work colleagues and friends talk about how they sacrifice payment of some personal expenses from their salary. These payments include school expenses, mortgage payments, car leasing and superannuation, to name a few of the more ‘traditional’ items.
The intention is to pay personal expenses from your ‘pre-tax’ salary. Dependant on your employment category and salary level, you should save tax on the arrangement. Because these expenses are otherwise non-deductible this means less money for the ATO; more money for you to invest.
Rules apply to Salary Packaging/ Sacrificing arrangements
The ATO publishes information about the process – and prominently disclose that they are unable to provide advice to taxpayers as to what they should or should not salary package (sacrifice) in their individual circumstances. Nevertheless, the information they provide is invaluable, if wordy. (We have extracted relevant information and published the ‘slightly’ shorter version.)
You should be aware that it is only income that is yet to be earned that can be sacrificed. Once you have earned an amount (accrued holiday pay, declared bonus, long service leave etc) you cannot retrospectively ‘sacrifice’ it. (The ATO information makes that point early in their guide – ignore that feature at your taxation peril.)
Limitations to Salary Sacrificing arrangements
A couple of other points to consider:
- Fringe Benefits Tax (FBT) will apply to many salary packaged expense items; and
- Contribution caps apply to superannuation contributions, whether paid under the employer’s obligation under the superannuation guarantee scheme or from salary sacrificed amounts.
You should consult with your accountant/ taxation adviser in relation to FBT matters. They may also be able to guide you as to your superannuation contribution limits. Your financial planner will certainly be able to guide you on this matter! Remember, the best time to consider this is prior to starting a new employment contract term, even with an existing employer. Otherwise, the commencement of a new financial year is satisfactory.
Financial advice about Salary Sacrificing arrangements
Continuum Financial Planners Pty Ltd has a team of experienced advisers who are competent to provide advice on salary packaging matters (and are often called upon to sign off on arrangements clients want to put in place with their employers); to benefit from personalised, professional wealth management advice on this topic arrange a meeting with one of our team: ‘we listen, we understand; and we have solutions’ – call us on 07-34213456; or use the website Contact Us facility and be assured of prompt and courteous attention.
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