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Ways to utilize salary packaging to reduce tax

Superannuation Voluntarily contribute more to your superannuation and save tax if your marginal tax rate is above 15%. If you are aged 48 years or younger on the 30 June 2016, you can contribute up to $30,000 a year in concessional contributions for the 2016/2017 year. If you are aged 49 years or older on the 30 June 2016, you can contribute up to $35,000 a year in concessional contributions for the 2016/2017 year.

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John has a gross salary of $100,000. His income tax is $26,732 for the year. If he chooses to salary sacrifice $20,000 to his super scheme, his income tax would be reduced to $19,147. He has reduced his tax by $7,585!

Important note: A relatively unknown loophole in the Superannuation Guarantee (SG) rules allows an employer to cut an individual’s SG entitlements when an employee reduces their taxable salary via a salary sacrificing arrangement. Make sure you check that your employer is not reducing their contributions after you make additional contributions to your superannuation. In the meantime, watch out that you don’t exceed capped limits.

Use Novated Lease to purchase a car with Pre-tax income
A Novated Lease allows an employee to lease a car from a finance company by signing a Novation Agreement with their employer. The employer is then responsible for making the lease payments to the finance company. In the meantime, the employer deducts lease payments from employees before tax income. Employees also pay Fringe Benefits Tax (FBT) themselves through a deduction from their after tax income.

Example: Mary has an income of $90,000 per year. She would like to enter into a Novated Lease arrangement to acquire a car for personal use costing $65,000. Annual running costs are estimated to be $21,000. Fringe benefits on the car would be $13,000 which will be deducted from Mary’s package. Mary will save $2,895 per year on her tax, and $14,475 over the 5-year lease. Note: this example ignores the impact of GST, input tax credits and the luxury car tax threshold.

Work related items

Work related items can be provided under salary packaging arrangements. Such as:

  • Portable electronic devices (e.g. laptop or tablet devices, mobile phones).
  • Computer software
  • Protective clothing
  • Tools of trade
  • Briefcases
  • Work related newspapers and business journals
  • Work-related membership and fees, such as corporate airport lounge

Before you decide to embark on a salary sacrifice arrangement, talk to your Accountant or a Financial Advisor about the overall tax implications of such a strategy. Ensure you do notlose out financially on your employment package.

Declaration: We hope this information will be useful to you. Remember, this article has been prepared without specific knowledge of your financial situation. Before making financial decisions or plans be sure to consult with an Accountant or a Financial Advisor.

Declaration: The Excel files and content of this website have been prepared without taking into account your personal financial situation or knowledge of your financial needs. Impact Taxation and Financial Services cannot be liable for any losses or damages arising from using the information provided. It is the user’s responsibility to seek independent advice from a professional accountant before implementing any financial plan.