Salary Packaging is an arrangement between an employer and employee to create a more flexible and valuable remuneration package. It involves the employee forgoing a portion of their taxable cash salary in exchange for fringe benefits provided by their employer.

This allows employees to achieve a financial benefit from salary packaging their daily living expenses from their pre-tax salary (which would normally be paid from their post-tax disposable income).

Available benefits may include:

• home mortgage payments
• motor vehicles (including running costs such as fuel and servicing)
• laptops and portable electronic devices
• superannuation contributions
• meal entertainment
• and more

Fringe benefits are paid using the employee’s pre-tax salary, meaning no Income Tax is payable on the sacrificed funds (unlike a cash salary). A Fringe Benefits Tax (FBT) may apply to the fringe benefits; however some benefits are FBT exempt or subject to concessional treatment, providing a greater potential tax saving. Any applicable FBT is deducted from the employee’s pre-tax salary, meaning it is cost neutral to the employer. In fact, an employer may achieve other secondary advantages and cost savings by making salary packaging available to their employees (see Employer Benefits).

An employer who offers salary packaging opens up a large range of benefits to both themselves and their individual employees. The advantages each party can achieve will vary according to:

• your organisation’s industry sector (eg. Private Sector, Government, Public Health, Rebatable, Charities)
• your organisation’s size
• the policy that you decide to implement
• the employee’s personal financial circumstances

Ultimately almost all employers and their employees can obtain a substantial financial benefit and secondary intangible benefits from establishing a salary packaging arrangement.

At no cost to your organisation, you can outsource the management of salary packaging services to Southgate, so your organisation doesn’t take on board any of the administration burden or costs involved in making this option available to your employees. Visit Employer Benefits for a detailed explanation of the advantages available to employers.

If you would like to enquire about the available options for your organisation, please call us on 1300 132 500 or enquire with one of our Business Development Managers.

Southgate assists employers to create their own Salary Packaging Policy based on the needs and preferences of your organisation. The policy regulates issues such as:

• which employees are eligible to salary package
• which fringe benefits are offered
• any required limitations (such as maximum income that can be packaged, luxury car restrictions, etc)
• treatment of GST Input Tax Credits (ITCs)

The provision and administration of salary packaging is regulated by the Fringe Benefits Tax Assessment Act 1986, the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, and the A New Tax System (Goods and Services Tax) Act 1999. Salary packaging is 100% legal and the Australian Tax Office (ATO) has an extensive archive of salary packaging publications and information on how it works.