Salary Packaging 101
- You spend money on an applicable item.
- You complete the claim form for that item and submit it to your administrator with evidence of the item.
- Your administrator then liaises with payroll to ensure the amount is taken out of your fortnightly pay before tax.
- Payroll then takes tax from your remaining salary and pays you’re the net amount.
- You then receive the payment from your administrator usually one day later.
Yes, all hospitals have set administrators that you must use. It is their role to facilitate the process and liaise with payroll to ensure you earn a portion of your income tax free. An administrator is not licenced to give individual financial advice, and this must be given by an accountant or financial adviser.
Any amount you salary package will reduce the tax you have to pay on your income. There are fees associated with packaging that can be up to $300. In this case you want to package over $1,000 for the year as this will offset the fee.
No, the items you salary package do not have to be related work. In fact, it is better to claim items that do not relate to work. Usually any work-related expense is tax deductible so you are better off claiming work related items in your tax return and preserving your salary packaging caps for personal expenses.
In most cases you can still package the full caps even though you are part time. Some hospitals may use a pro-rata calculation for casual workers.
You can contact your hospital payroll to find out who administers salary packaging and then contact the administrator.
You want to salary package as much as you can as it will reduce the tax you pay on your income. You need to remember that salary packaging is a tax savings and is directly linked to your marginal tax rate. As an intern your average tax rate is 30%, so for every dollar you salary package you will save 30 cents. For this reason, you do not want to spend money just to package and you only want to maximise it up to your actual expenses.
With the use of backdating you could use your expenses for the previous 12 months which may mean you have enough to claim prior to starting in January.
If you go over your annual cap you will need to repay the money, tax will hen be withheld, and you will get the reminder. In most cases the administrator will ensure you do not exceed you cap.
Salary packaging per employer allows you to access the caps for each separate employer you work for. This would usually mean you are paid by a separate hospital for each rotation. In most cases if you are employed in the same network, Monash Health for example, you would only have access to the one set of caps.
Salary packaging increases you take home pay each fortnight. That is because there is a portion of your fortnightly income that is not taxed.
Potentially. Some hospitals allow you to backdate your claims up to 12 months. This allows you to claim any allowable item you have had up to twelve months before your start date.
Backdating allows you to salary package expenses that you have incurred prior to starting work in January. Hospitals vary on how far you can backdate but this means any expense your are currently incurring could be claimed during internship. You still need to ensure you have the correct evidence to make this claim.
It is possible to put in a claim for any amount up to the cap limits. If this amount is more than your actual income for the fortnight you will pay no tax that fortnight and the remainder will be carried forward to future fortnights until the whole amount is claimed.
Yes, it is possible but usually this will require the use of backdating. When you start in January you may already have $9,010 of expenses to claim from the previous 12 months. It is important to start setting up a plan for packaging straight away in case you need to change your spending habits to reach this cap in the first rotation without any extra spending.
You can’t salary package more then what you earn. It would be extremely unlikely to earn this amount in a fortnight so the most you can package is the amount you earn.
Fringe Benefit Tax, as per the ATO A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages. FBT is the tax on these payments but as you will be employed at a public hospital you will be exempt. The FBT year runs from 1 April to 31 March and is what your salary packaging is based off.
If you don’t use up the spending caps by the end of the FBT year, you do forego those caps, or in other words the caps expire. This will mean you have to start using the new caps that start in the next FBT year.
You want to salary package as much as you can as it will reduce the tax you pay on your income. You need to remember that salary packaging is a tax savings and is directly linked to your marginal tax rate. As an intern your average tax rate is 30%, so for every dollar you salary package you will save 30 cents. For this reason, you do not want to spend money just to package and you only want to maximise it up to your actual expenses.
With the use of backdating you could use your expenses for the previous 12 months which may mean you have enough to claim prior to starting in January.
Novated leasing is a three-way agreement between you, your employer and a finance company. It allows you to pay for your lease payments and all your car’s running costs – including petrol, insurance, rego and servicing – into one convenient regular payment. Although it reduces you tax it is not recommended for all people, so it is worth getting individual advice.
Yes, novated leases and hire-to-purchase is separate to salary packaging.
Living Expenses Cap
Some hospitals allow you to package your general living expenses by submitting your individual receipts. If this method is used though you can only package the GST exclusive portion which reduces your cap to $8,190. Usually it is easier and more beneficial to change your spending habits and use one of the set methods.
Yes, if you have used one of the allowable methods of payment. If you pay for meals on your credit card this could be claimed under the living expenses cap. This will be using up your $9,010 cap on expenses that can be claim elsewhere and reduce the overall benefit available.
Most hospitals will allow you to set up a living expenses card that works like a prepaid debit card. Each fortnight you allocate a portion of your income to be loaded onto the card and you can spend that on living expenses. Keep in mind that you can only spend up to the amount on that card at any time so if you want to purchase something for more then your available balance you will not be able to. This can create limitations on how and when the card can be used in comparison to the credit card option.
If you want to maximise the caps in the last 3 months of the FBT when you start your internship, you will need $11,660 ($9,010 + $2,650) of expenses in which you can salary package. You can’t salary package more then what you earn each fortnight. This means you will have to package over a few fortnights to reach the $11,660 combined limit.
You will not lose money if you do not package. However, you will be missing out on your chance to save thousands in taxes you have to pay.
Salary packaging is a tax saving and not a reimbursement, which means you save tax on the amount you package. If you don’t have the expense to package, then it’s something you didn’t pay for and therefore less out of your pocket.
For each item you want to package you will need to substantiate it with some form of proof that you have either paid or will be paying for the expense:
- Rent and loans – A formal contract or agreement under your name showing the obligated payment amounts is proof that you will need to make future payments regardless of how you pay.
- Credit card – You will need credit card statements under your name showing the repayment made.
- Meals and entertainment – If you are claiming through the receipt’s method, you will need an itemised receipt which details the meals and drinks you have had. As well as any eftpos slip or bank statement to show you paid with your card. Otherwise if you use a meals entertainment card, then using the card itself is a form of substantiation.
- Venue hire and accommodation – Invoice addressed to you along with booking details and a receipt to show payment.
- Portable electronic device – Invoice and receipt.
Rent
If you have a formal lease agreement and make regular payments you will be able to package these payments under the Rental category.
In most cases you will be able to package 100% of the rental expenses as it is a shared expense. When in a domestic relationship it can be considered that the whole expense is yours together and there is no split as the expense come out of shared funds.
No, there is no set payment method for rent and you can use any that is provided by your landlord/agent as long as you have a rental agreement with your name it.
Yes, you can package rent. You will need a rental contract under your name to prove this when you are lodging your claim.
When it comes to packaging rent, you will only be able to package the portion that you pay. The administrators will look at the documentation that you provide and can ask questions accordingly. This may be an even allocation based on the contract or they may ask for bank statements showing proof of the amounts you regularly pay. Remember that the rental contract or agreement needs to have your name on it.
All hospitals allow you to update your salary packaging agreements at any time, however it is important to note that some hospitals will charge a fee for any changes made. You could set up your account now and only set up each item once you have it organised.
No, the loan usually needs to be an Australian based loan with a loan contract in place.
Yes, you can add the loan repayment item at anytime during the year.
Yes, you can salary package car loan repayments as long as you have a contract in your name.
Credit Cards
No, it must be a credit card and not a debit card. This is because you are not packaging the expenses but the repayment of the credit liability. There is no liability with a debit card and you are just paying with your own funds.
No, you can spend anything you want on your credit card (clothes, groceries, bills, etc). This is because you are not packaging the items purchased but the repayment of the outstanding balance.
No, the credit card has to be in your name as you have to be the one responsible for any repayment.
Yes, your credit card can have subsidiary card holders. In this case you can still package all the repayments as they are your obligation.
The salary packaging of credit card repayments are always retrospective. You must spend the money on the card, make the payment and then submit the statement showing the repayment as evidence. This can be done fortnightly, or you can submit a bulk list of repayments that can be claimed over multiple pay periods.
You are claiming the repayment of any balance on the card, This will include and principal or interest that has accrued. If you pay back the credit before any interest is charged it is just the principal.
HECS-HELP
Yes, salary packaging will affect your HECS-HELP repayments and likely increase the amount you need to repay each year.
During the year your employer withholds extra tax each fortnight based on your taxable income (income minus salary packaging) to go towards your HECS-HELP repayments.
When you lodge your Tax Return the ATO calculate the tax you should pay based on your taxable income but calculate your HECS-HELP Repayment based on your Adjustable Taxable Income (income plus salary packaging).
As the ATO add back salary packaging there may be a shortfall at year end you need to make up.
See the below links for more resources:
It usually has the opposite effect due to HECS-HELP repayments being calculated on your Adjustable Taxable Income (see above question).
HECS-HELP repayments are separate to salary packaging and are handled through payroll and your annual tax return.
Portable Electronic Devices
Each hospital has different backdating rules so it will be dependant on your employer. Usually you need a letter from the hospital approving the PED is used for work purposes. If this is the case, then you might not be able to backdate the expense.
You can not partially claim a device through salary packaging. For this reason, we would advise you to salary package the whole device instead of just claiming the business use percentage in your tax return as it doesn’t use any of your caps.
Venue Hire & Accommodation
Yes, venue hire and accommodation expenses will be counted towards the one $2,650 spending cap.
Accommodation includes any short-term accommodation while travelling interstate or overseas. It does not have to be for work.
Under part A living expenses you package up to $9,010 of rent and under part B other expenses you can package up $2,650 of accommodation. If your short-term stay requires a lease or rental agreement, then you can package under part A living expenses. However, if it’s temporary in the sense no agreement or contract is required, then it would come under part B other expenses.
Salary packaging is way to earn a portion of your income tax free, by allowing you to pay for certain expenses with pre-taxed dollars. You do have to pay for the expenses first before you package the expenses. The amount that you package will be recognised as the tax free portion of your income. Therefore you reduce the tax paid on that portion of your income.
Meals & Entertainment
The administrator will do random audits on your meal entertainment account. They will check for total spend, venue and other measures to ascertain whether claims have been made in line with the rules.
For example. your card may work when purchasing a coffee, but this small expense will be a red flag which may bring questions.
There is two methods to claiming meals…
First being the receipts method in which you keep the receipt from the restaurant and then submit this online, through the app or manually to your administrator. This method allows you to claim the expense you incur.
The other method is a Meal Entertainment card. This is a debit card set up by your administrator that you can load money onto. You need to specify how much you want loaded onto it each fortnight which will be taken from your pay before tax. The money then stays on the card until you use it to pay for a Meal Entertainment expense.
The money will stay on the card until you use the full amount. If you do not wish to use it you can apply for it to be returned to you. In this case it will go through payroll where a potion will be taxed, and you will receive the net.
Most hospitals will charge an administration fee for using the Meal Entertainment option whether being by card or receipts and the amount will be dependent on the hospital. It is best to check with each individual administrator.
Most hospitals have an everyday expense card that allows you to package Living expenses (bill, utilities, groceries etc) and a meals entertainment card. In some cases, hospitals have one card for both categories. Usually we recommend using a credit card for living expenses as you won’t have to worry about allocating a specified amount each fortnight. As for meals, some hospitals require to you have meals entertainment card to package meals but if you have a choice then it is up you which method works best for you.
Using the meals entertainment card, you package what you pay for. You can only package the meals of those dining with you, if you pay them as well.
No, as you are no longer having a meal as the entertainment.
One of the rules with packaging meals is that it is at a restaurant or café. Therefore, it does not have to be at a fancy dine in, you can package the meal if you are having lunch with others. You just need to make sure you satisfy the other rules; dine with others, have a main meal, be there for the meal and not the entertainment.
For takeaway, the same rules apply, and you can package for what you paid for. If you paid for the order, then you package the full amount.
For takeaway, the same rules apply, and you can package for what you paid for. If you paid for the order, then you package the full amount.