Do you like the idea of saving tax? You may have heard of the term salary packaging, but did you know that there may be extra benefits for medical practitioners?
It is common for medical practitioners, even those who work in private practices, to work in some capacity for a public or private not-for-profit hospital. If this is you, there are specific concessions that can apply.
Salary Sacrifice 101
Basically, salary sacrifice means instead of receiving all your salary in cash, your employer can remunerate you by paying for certain expenses or purchases on your behalf using your pre-tax salary. This means that the portion of salary you “sacrificed” will not be taxed on your tax return.
The Tax Office is aware that they may be missing out on collecting tax from you under this arrangement. So if they cannot tax you personally for this portion of income, they will tax your employer instead by means of Fringe Benefits Tax (FBT).
As such, most employers tend not to be as willing when it comes to offering their employees with salary sacrifice arrangements. However, if your employer is an FBT exempt entity (i.e. a public or not-for-profit hospital), then you can definitely look into salary sacrificing on personal expenses that you ordinarily cannot claim a tax deduction on.
Public and not-for-profit hospitals are able to provide a salary package to an employee of up to $17,000 “grossed up” benefits without getting taxed. The threshold equates to $9,010 of real cash benefits for GST-free payments (e.g. mortgage payments or your children’s school fees), or $8,172 of GST-taxable payments.
The below example illustrates the tax savings achieved by adopting a salary sacrifice arrangement with an FBT exempt employer:
|Without Salary Packaging||With Salary Packaging|
|Personal expenses paid via pre-tax salary||N/A||9,010|
|Taxable income (excludes salary sacrificed amounts)||180,000||170,990|
|Gross salary received by employee||180,000||180,000|
|Income tax payable (including Medicare levy)||57,697||54,183|
|After-tax cash salary received by employee||122,303||116,807|
|Personal expenses paid using after-tax salary||9,010||N/A|
|Net cash benefits received||113,293||116,807|
|Total tax savings achieved||3,514|
There is also a separate threshold (on top of the $17,000 cap mentioned above) available to FBT-exempt employers for salary packaging Meal entertainment expenses.
The exemption is available up to a grossed up value of $5,000, which equates to real cash benefits of $2,403 for GST-taxable expenses. So you may also consider salary packaging additional private expenses such as dining at restaurants, corporate box subscriptions, or catering and venue hire for private functions.
Apart from non-deductible personal expenses, another common strategy is to salary sacrifice additional super contributions into your super fund, as this type of salary sacrifice arrangement is completely exempt from FBT. This means that it will not count towards the $17,000 threshold mentioned above for FBT-exempt employers. As such you will find that employers generally will not have an issue providing this to employees. The benefit achieved here is that your sacrificed amount will be taxed in your super fund at a concessional rate of 15%, as opposed to your individual marginal tax rate which can be up to 47% (including Medicare levy).
However, with the exposure of Division 293 and excess contributions taxes, higher income earners may not benefit from this type of arrangement. As such, you should consult your tax and financial advisors before you enter into such arrangement.
Other Work-Related Items
There are also various other types of items that can be salary packaged which are fully exempt from FBT and are not subject to any capping or threshold restrictions, provided they are primarily used for work purposes. These include:
- Portable electronic devices (i.e. laptops, tablets and mobile phones) **
- Tools of trade (i.e. medical tools and instruments)
** There cannot be two or more items that bear the same characteristic / function in a given financial year.
You may also consider salary packaging your car via a financing arrangement known as a novated lease. A novated lease is simply a lease that is able to be transferred to a new employer or taken over by the employee if their employment situation changes. The level of tax saving benefits achieved under this arrangement is highly dependent on each individual’s circumstances, such as:
- Cost of the car
- Annual running costs
- Level of your income
- Volume of business usage
Unfortunately there is no easy rule of thumb in determining whether it is worth salary packaging your car, as such we recommend that you consult your tax and financial advisors before entering into this type of arrangement.
If you would like to learn more about your salary sacrificing options, please feel free to contact Kristy Baxter or Angela Stavropoulos on firstname.lastname@example.org or on 07 3023 1300.