Salary packaging and salary sacrificing provide two ways for tourists to maximise available travel funds without skipping vital pension contributions. There are some differences between the two, however, and the most beneficial depends largely on your financial goals.
Working in Australia
For many travellers, working in Australia is a lucrative option that helps tourists top up their travel funds whilst exploring the wild and wonderful Australian landscape.
If you plan to only travel for a short time with an Australian Working Holiday Visa, you’ll likely want to maximise your disposable funds. If, however, you plan to stay in Australia for an extended period, you’ll likely be more intentional with your finances, keeping the future in mind.
No matter your current situation or your long-term financial goals, there are ways to optimise your income stream, maximise your employee benefits, and contribute to your retirement fund. The most popular are salary packaging and salary sacrificing.
What is Salary Sacrifice in Australia?
Salary sacrificing involves voluntarily giving up a portion of your salary in exchange for other benefits or contributions. Under a salary sacrifice arrangement, employees agree to redirect a part of their pre-tax salary towards their superannuation fund.
Benefits of Salary Sacrificing
There are many benefits to be gained from the salary sacrifice scheme. These include:
Superannuation Growth
Salary sacrificing towards your superannuation can help boost your retirement savings. By making additional pre-tax contributions to your super fund, you can take advantage of potential tax benefits and ensure a more comfortable future.
Mortgage and Debt Reduction
Salary sacrificing doesn’t necessarily have to go towards your retirement. The funds you sacrifice can also be used to make extra repayments on loans or mortgages. By allocating a portion of your pre-tax income towards these payments, you can reduce your debt faster and save on interest payments over the long term.
Tax Savings
Since the sacrificed amount is subtracted from the employee’s pre-tax income, the scheme reduces your taxable income to reduce your income tax liability and keep more of your hard-earned cash in your pocket.
Salary sacrifice Savings
Find out how much you could save towards your retirement with the salary sacrifice scheme.
| Without Salary Sacrifice | With Salary Sacrifice |
Jack’s Salary | $90,000 | $90,000 |
Salary Sacrifice | $0 | $10,000 |
Tax | $19,717 | $16,567 |
ESG (10%) | $9,000 | $9,000 |
Take Home Pay | $69,983 | $63,433 |
Tax in Super (15%) | $1,350 | $2,850 |
Total Contribution | $7,650 | $16,150 |
What is Salary Packaging in Australia?
Like salary sacrificing, salary packaging allows employees to structure their remuneration in a way that offers tax advantages and additional financial benefits. Under a salary packaging arrangement, an employee can receive a portion of their salary as tax-free income to cover expenses and expenditures.
These fringe benefits can include items such as cars, laptops, mobile phones, health insurance, and more. By redirecting a portion of their salary towards these benefits, employees can potentially reduce their taxable income and enjoy certain tax exemptions.
Am I Eligible for Salary Packaging?
The biggest downside to salary packaging is that not all employers offer it, and those who do may have limitations on the benefits that can be packaged. Currently, salary packaging is utilised by the healthcare and not-for-profit sectors which have generous packaging allowances.
If your employer does not currently offer salary packaging, be sure to discuss your options with your employer in more detail. Most employers are accommodating and will support you in allocating funds to pay for work-related purchases and more.
Benefits of Salary Packaging
There are several benefits of salary packaging. These include:
Tax Savings
One of the primary advantages of salary packaging is the potential tax savings it offers. By opting for certain benefits instead of cash income, employees can effectively reduce their taxable income and pay less tax.
Customization
Salary packaging allows individuals to select benefits that align with their preferences and requirements. This flexibility enables employees to tailor their remuneration to suit their lifestyle, whether it’s through a novated lease for a car or a health insurance plan.
Additional Perks
Depending on the employer’s policies, salary packaging can provide access to additional perks and benefits that may not be available otherwise. These may include gym memberships, childcare expenses, or even holiday accommodation.
Salary Packaging vs Salary Sacrificing: the key differences
While both salary packaging and salary sacrificing involve redirecting a portion of your income towards specific benefits, there are key differences between the two:
Nature of Benefits
Salary packaging primarily involves receiving fringe benefits in exchange for part of your salary. These benefits can include items or services. Salary sacrificing, on the other hand, focuses on allocating a portion of your pre-tax salary towards superannuation or loan repayments.
Tax Implications
Salary packaging aims to reduce your taxable income by substituting cash income with fringe benefits. In contrast, salary sacrificing aims to reduce your taxable income by directing pre-tax income towards specific contributions or repayments.
Employer Policies
While salary packaging is subject to the employer’s policy and the range of benefits available, salary sacrificing typically involves contributions to superannuation or other financial arrangements that comply with the relevant regulations and policies.
The Best Option for Expats
Salary packaging and salary sacrificing are both valuable strategies that can optimise your income and provide various financial benefits. The right one for you, however, depends on your current situation and long-term financial goals.
Those travelling to Australia for a short timeframe with an Australian Working Holiday Visa will have the added benefit of more cash in their pocket to spend on accommodation, travel and other expenses. Those settling down in Australia for extended periods, however, will benefit from tax-free contributions to their superannuation fund.
Salary packaging vs Salary Sacrificing: Overview
Salary packaging allows employees to choose specific fringe benefits in exchange for part of their income, while salary sacrificing involves directing pre-tax income towards superannuation funds or loan repayments.
Understanding the distinctions between these approaches empowers individuals to make informed decisions about their financial arrangements, taking into account their personal preferences, tax implications, and long-term goals.
If you would like to learn more about tax in Australia, check out the 2 part podcast with special guest Eire Consulting.
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