Salary Packaging is the term used to explain the process of buying goods and services out of your pre-tax salary. What this means is that your pre-tax salary minus any salary packaging payments equals your taxable income. A lower taxable income means you pay less income tax.
Salary Packaging can provide tax effective solutions to help you pay for items such as a car, laptop, rent or mortgage repayments and many more things with the money being used to pay for these items coming from your pre-tax earnings.
By effectively salary packaging it allows you to reduce your annual tax bill to pay for every day goods and services with all of your payments coming out before you pay tax on your salary.
It’s important to remember that in Australia the purchase may become subject to Fringe Benefits Tax (FBT), a tax applied by the Australian Tax Office, which could negate the benefit.
The net benefit to you is dependent on a number of factors such as:
Certain goods & services are exempt from Fringe Benefits Tax. The Australian Tax Office has a list of “eligible work related items” that are exempt from FBT.
Certain organisations and their employees are also exempt from Fringe Benefits Tax (up to a maximum limit). The Australian Tax Office has a list of the types of organisations that are eligible for FBT exemption and the limits that apply.
Make sure you’re being smart with your money and if you need further financial advice please contact Prudentia Financial Planning today for a free initial consultation.
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