CBB’s salary packaging team get to do a lot of myth-busting when they’re out and about visiting our customers, but it’s clear to us that salary packaging is still somewhat misunderstood. So, I did the rounds of the CBB office to ask about the most common salary packaging myths and misconceptions. Without further ado, here they are – busted.
#1 Salary packaging sounds too good to be true, what’s the catch?
We get this question a lot, but the truth is, there’s no catch. The Australian Tax Office (ATO) created salary packaging as an incentive for employees of certain kinds of not for profits. It was designed to supplement the lower salaries that not for profit staff typically earn (when compared with other sectors). Of course, this means that all policies and guidelines that govern salary packaging are ATO-approved, so you can be assured that this entitlement is legal.
#2 I cannot access salary packaging because my job is part-time/casual.
This is totally untrue. If you are an employee of a HPC or PBI and you pay income tax (put another way, if you earn more than the tax-free threshold of $18,200 annually), you are eligible to salary package – as long as your employer offers it. Salary packaging is actually a very handy incentive for casual or part time staff because it lets you access a greater proportion of your pay, giving you more money to put towards your expenses (and a little extra in your pocket).
#3 I don’t pay rent or a mortgage, so I can’t salary package.
False! You don’t have to pay rent or a mortgage to enjoy the benefits of salary packaging – there are many other costs that you can cover with your pre-tax dollars. Any routine expenses that can be paid electronically are usually eligible. To name a few:
- Bills/utilities – think internet, mobile phone, health insurance, etc.
- Loan repayments
- Credit card repayments
- School or childcare fees
If you have salary packaged funds left over after your routine expenses are taken care of, you can have them sent to a CBB Salary Packaging Card. But the beauty of salary packaging is its flexibility: you don’t have to use your funds for routine costs at all – if you prefer, you can choose to just have a card by itself. These cards work just like a regular VISA card, and can be used when purchasing:
- Household goods
#4 I’ll have to pay it all back at tax time!
Salary packaging is not a loan, and you are not borrowing anything from the government or your employer. The money you access through salary packaging is your own money that you have earned. It’s just that, because of your employment circumstances, you can use the pre-tax component of your income to pay for expenses (see myth #3).
#5 I have a HECS-HELP debt, so salary packaging isn’t worth it for me.
That’s absolutely not true! While your HECS-HELP repayments may increase when you start salary packaging (see explanation below), you’ll still have a lower taxable income. So, the financial benefits of paying reduced income tax and receiving extra take-home pay still apply and will most likely outweigh any increase in repayments. But it’s worth remembering that the increased repayments will help you pay a HECS-HELP debt off quicker!
Why might HECS-HELP repayments increase? Well, they are calculated based on your ‘adjusted taxable income’, which is the sum of your annual taxable income plus your reportable fringe benefits (including the benefits you receive through salary packaging). An increase in adjusted taxable income usually equals an increase in repayments – but it won’t be as much as the extra money in your pocket from salary packaging.
#6 I already salary packaged in my previous job this FBT year, so I can’t sign-up again.
Actually, you can – and the longer you wait to start salary packaging again, the more money you’re missing out on! To make a long story short, you are entitled to package up to $15,899 tax-free with each PBI or HPC you work for in one FBT year (1 April-31 March).
By the way, when you sign-up with a member of the CBB Salary Packaging team, we help you access as much extra take-home pay as possible. Similarly, if you’re coming to the end of employment, get in touch with our Customer Care team on 1300 763 505 and we’ll help you make the most of your entitlement before you leave.
That’s it for now, but stay tuned for part two where we’ll bust even more salary packaging myths!