Salary Packaging provides you with a method of using pre-tax funds to pay for certain items with an eligible employer. If you work for a public benevolent organisation, you may be eligible for this benefit (e.g. Public Health, Research Institutes, etc.)
What are the benefits
Instead of your income being taxed, coming to you, and then being spent on items, salary packaging allows you to pay for items up to a cap with money directly from your pay (i.e. before tax). This means a new intern starting on around $70,000 p.a. and on current tax rates can receive a benefit of approximately $2,700 from packaging their rent (which had to be paid anyway!). Some doctors are eligible for more items like meal cards, parking, gym payments, and some other specific items which makes packaging even more appealing. As you progress through your career as a medical professional your income will increase significantly, and your overall tax benefit from packaging will increase as well.
What can I package?
There are a whole host of expenses which doctors can package, and these vary slightly from employer to employer. When looking at medical financial planning, the main eligible items include:
- Rent/mortgage costs: for principal place of residence only, not investment properties.
- Motor vehicle running expenses: items such as fuel, oil, services, and insurance can be packaged. This does not include additions to the car such as bull bars.
- Private travel and accommodation
- Meal and entertainment card: tax free meals with friends and family including takeaway. Note, this item is not available to QLD Health employees.
Are there disadvantages?
It can be time consuming.
Time is a commodity, and many doctors have little spare time to spend on managing their salary packaging. It can be difficult to dedicate sufficient time to ensure all possible benefits are included in packaging, what documents and forms need to be sent in, resolving any issues, and checking every month or two that all is running smoothly.
Salary packaging come with heavy penalties if it is not managed correctly.
Fringe benefits are treated as if they are income and are usually taxed, however as a doctor at a public benevolent institution (e.g. QLD Health hospital, Mater, Wesley) you are given a grossed-up exemption of approximately $17,000 from this tax. Grossing up refers to the way that the ATO ‘sees’ the benefit, and without going into the complex details it means that you get a tax-free amount of between $8,236 and $9,010 – this is where the benefits from packaging come from. Fringe benefits tax assumes you are on the highest pay rate (earning over $180,000 a year) and slogs you with the top tax rate on the grossed-up amount if you go over this cap limit. The cap limit changes depending on whether you are claiming GST or non-GST items and is easy to lose track of. In addition to this, other benefits from employers are sometimes classed as fringe benefits and will count towards your cap, for example living away from home allowances and car usage. Further to this if you work for a hospital which doesn’t have PBI status (e.g. Greenslopes), you don’t get access to the exemption cap and thus the benefit of packaging. This also includes many secondment situations.
What we can do
As specialists in medical accounting and financial planning, Walshs has managed thousands of doctor’s salary packaging accounts and can assist with the ins and outs of the rules and knowing what benefits are best to package. By managing the process end-to-end, Walshs can identify eligible expenses, ensure that the claims are correctly filled out and sent in on time, and iron out any issues when they arise. We know how your packaging is best administered, what works, and how to get the best results for you. We also monitor your account to check that everything is going as planned and that you are on track to hit the cap without exceeding it. We can also advise which one off events like seconding to another hospital, rural relieving, or locum work will affect your account and how we can minimize or negate any negative effects.
To find out how Walshs can assist you with your Salary Packaging please contact our office on (07) 3221 5677 or book an appointment.
Article By: Keehly Peters, Salary Packaging Manager & Matt Gellweiler, Walshs Partner