“One of the biggest tax savings available to young medical professionals”
Salary packaging is a tax saving available to employees of the public health system. It enables you to pay certain expenses with pre-tax income, resulting in more cash in your pocket each pay day.
Here are our top 5 tips to ensure you get the most out of your packaging and keep as much money in your pocket as possible.
1. Learn the Basics
You might have heard that the rules for salary packaging are different depending on where you are working. This is true, to an extent. Here are the basics that apply at most hospitals in Australia.
A common misconception is that salary packaging a dollar means a dollar is saved. This is not the case; the saving is equal to your marginal tax rate, being the tax you would otherwise have paid on this income. On an annual income of $65,000, for example, this is a saving of 32.5c in the dollar.
The FBT Year:
Salary packaging is based on the Fringe Benefits Tax (FBT) Year which is different to the financial year. The FBT Year runs from 1 April to 31 March each year.
Salary packaging is divided in to two main categories; Living Expenses and Other Items. Your living expenses are capped at $9,010 per FBT Year and your Other Items at $2,650. These caps are accessed once per employer or health network per FBT year.
Your Living Expenses cap can generally be made up of:
- Loan Repayments;
- Credit Card Repayments; and
- School or University Fees.
Your Other Items cap can be made up of:
- Meal Entertainment; and
- Venue Hire and Accommodation.
Portable electronic devices can be packaged outside the two caps at some hospitals.
2. Timing is everything
Due to the difference in the FBT Year and your intern year, there is the opportunity to salary package the caps 2-4 times each. With a new tax year starting every July, you may also be able to maximise your tax savings by packaging in a financial year in which your income level is higher. Depending on your rotations, you may be able to package over $36,000 worth of income and save tax of over $10,000!
3. Act early
There are steps you can take well in advance of starting your intern year to ensure you will be maximising your salary packaging from day one of employment. Knowing the rules at the hospitals you will be working at is vital and your DPM consultant can ensure you are taking the right steps as early as possible.
4. Keep evidence
In the event of an audit you may be asked to provide evidence of expenses which you have packaged. You should keep these records for five years.
5. Get advice
The labyrinth of rules at each hospital network can be confusing. You may also have to deal with multiple administrators. Your DPM consultant can help you understand the rules which apply to your hospitals, offer tailored advice on setting up your salary packaging accounts and help you put a detailed plan in place.
To get all the advice you need on salary packaging as well as any other financial advice, book your no obligation initial consultation by emailing email@example.com or by calling 1800 376 376.
* The information contained in this site is general and is not intended to serve as advice. DPM recommends you obtain advice concerning specific matters before making a decision.