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Frequently Asked Questions
What is Salary Packaging?
Why Salary Package?
How can Employers benefit from implementing a Salary Packaging Program?
What are the most common benefit types?
What are the benefits of a Novated Lease for an Employee?
What are the finance terms for a Novated Lease?
What is the Employee Contribution Method (ECM) and how does it work?
What is the average benefit received when entering a salary packaging arrangement?
How do I start Salary Packaging with Income Essentials?
What is Salary Packaging?
Salary packaging is the legal restructuring of your remuneration with the objective to maximise non-cash benefits plus net take-home pay to gain better financial benefit from your remuneration. Effectively, this is equivalent to a salary increase where your after-tax income is increased at no additional cost to your employer.
Why Salary Package?
The objective is not the minimisation of income tax as is often mistakenly assumed. The aim of salary packaging is to increase your take home salary. The Australian Taxation Office approves salary packaging and the salary packaging provided by Income Essentials is fully compliant with FBT (fringe benefits tax) legislation.
How can Employers benefit from implementing a Salary Packaging Program?
When a salary packaging program is implemented, the Employer is often considered an Employer of Choice - offering employees the flexibility of taking their remuneration in the form of both cash salary and non cash employer benefits.
Employers would like to be more competitive in the market in attracting and retaining skilled employees and a salary packaging program greatly assists in this area.
Employers often receive a reduction in Payroll Tax and Work cover where employees take advantage of the program.
The introduction of an outsourced salary packaging program will remain a vital ingredient in the maintaining and enhancing of Business’s culture, and also allow key staff to concentrate on the Core Business of the Company which can often lead to savings and productivity for the business.
What are the most common benefit types?
Car Benefits
Where a motor vehicle is included in the package structure, usually through a Novated Lease or an Associate Lease (can these please link to the appropriate pages)
Fringe Benefits Tax (FBT) is calculated by either the statutory method or the operating cost method. Income Essentials will determine the most appropriate method for you.
Exempt Benefits
The packaging of benefits that are exempt from Fringe Benefits Tax generally due to business use. These items include, though are not limited to, Laptop Computers, Mobile Phones, PDA / Electronic Diaries. A business use declaration will be required by Income Essentials.
Expense Benefits
Mortgage payments, Credit Card repayments, Personal Loan repayments, Rent payments and Private Health Insurance are some of the items considered by the ATO expense items and attract FBT.
The rate of FBT and the payments required depends on the FBT status of your employer. Income Essentials can discuss with you the particular application to your employer.
Otherwise deductible Items
Otherwise deductable items tax deductable in the hands of the employee, which are claimed on the employee’s annual tax return. These items may be packaged to allow you to receive the tax saving throughout the year, rather than waiting until you lodge your tax return. These items include Professional subscriptions, Accounting Fees, Self education, Home office expenses, Income Protection, Investment Loan interest (Negatively Geared Interest)
What are the benefits of a Novated Lease for an Employee?
Novated Leasing means that your car lease payments and vehicle running costs are deducted from before-tax wages by your employer. Compared with paying for your car from your net salary (after tax), you generally pay less tax - resulting in more disposable income.
Generally, Novated Leasing offers you greater flexibility in the type of vehicle you choose to drive. Rather than having to select from a limited range of company car options, you're able to choose your own vehicle that meets your budget and lifestyle needs.
Finally, under a Novated Lease, if you change employer you don't need to hand your car back - your Novated Lease can be transferred to a new employer, or remain in your name only if required.
What are the finance terms for a Novated Lease?
Novated lease finance terms range from 12 to 60 months, or 1 to 5 years. The structure of a Novated Lease is such that there is a residual value owing at the end of the finance term.
At the end of the finance term you have 3 options, they are;
- You can pay out the residual value and own the car. The salary packaging of the novated lease will then cease as the vehicle is no longer under finance. In this instance we can look at other alternatives for you, such as an Associate Lease.
- You can trade in the vehicle. In this instance the dealer would use the trade in price to pay out the residual to the financier, you can then start a new lease with a new vehicle.
- You can refinance the residual value over another term (1 through 5 years). You will need to keep in mind the age of the vehicle and residual amount when looking at this option.
Why do I need to nominate the number of kilometres I am going to travel each year?
The kilometres you commit to effect both the fuel budget we estimate but more importantly the FBT component (or after tax amount you see in the examples). The kilometres, for FBT purposes are in brackets, they are;
Distance travelled
during the FBT year
(1 April – 31 March)
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Statutory rate (multiplied by the cost of the car to determine a person’s car fringe benefit)
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Existing contracts
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New contracts entered into after 7:30pm (AEST) on 10 May 2011
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From 10 May 2011
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From 1 April 2012
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From 1 April 2013
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From 1 April 2014
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0 – 15,000 km
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0.26
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0.20
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0.20 |
0.20 |
0.20 |
| 15,000 – 25,000 km |
0.20
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0.20 |
0.20 |
0.20 |
0.20 |
| 25,000 – 40,000 km |
0.11
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0.14 |
0.17 |
0.20 |
0.20 |
| More than 40,000 km |
0.07
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0.10 |
0.13 |
0.17 |
0.20 |
What is the Employee Contribution Method (ECM) and how does it work?
The Employee Contribution Method (ECM) of calculating Fringe Benefits Tax (FBT) is used to allow employees to partly or completely pay vehicle costs using post-tax contributions. Employee contributions made in post-tax dollars can be used to reduce the FBT Taxable Value, and the associated FBT Liability. Post-tax contributions can be used to reduce, or even eliminate, your FBT Liability. As FBT Liability is calculated using the top tax rate, this method may be more tax effective for employees with a taxable income that falls outside of the top tax rate.
What is the average benefit received when entering a salary packaging arrangement?
Our statistics show the following average packaging benefits;
- An employee on a salary of $38,000, packaging a Novated Lease and vehicle operating costs increases their net disposable income by an average of $1,638. This gives an equivalent gross salary of $40,391.
-An employee on a salary of $50,000, packaging a Novated Lease and vehicle operating costs increases their net disposable income by an average of $5,981. This gives an equivalent gross salary of $58,728.
- An employee on a salary of $100,000, packaging a Novated Lease and vehicle operating costs increases their net disposable income by an average of $6,358. This gives an equivalent gross salary of $117,467.
- An employee on a salary of $150,000, packaging a Novated Lease, an Associate Lease and operating costs for each vehicle increases their net disposable income by an average of $9,533. This gives an equivalent gross salary of $176,010. The Associate Lease also provides an off set of income to a partner / spouse.
How do I start Salary Packaging with Income Essentials?
The first step to accessing the benefits provided by Income Essentials is to contact us (can this be a link to contact us) via phone or email. A consultant will discuss your requirements with you and prepare a package example based on your specific needs.
We ensure your package will be appropriate to your needs and maximise the savings available to you.
All consultations and package examples prepared by Income Essentials are free of charge and obligation.
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