We work with a lot of Doctors, Nurses and Health Care professionals who are employed in the not-for-profit hospital system, such as Queensland Health. More often than not there is confusion about salary packaging options and if they really save money – let’s explore this further.
So how does salary packaging work and what is the tax benefit? Salary packaging is a vehicle that facilitates tax free spending of your income. As an employee of a not-for-profit hospital you benefit the most from salary packaging arrangements. This is best explained by way of example.
Take Michael who earns $100,000. He wants to know exactly how much money he is saving through salary packaging of expenses up to the cap of $9,095 each year.
Scenario 1 – Without Salary Packaging
Total Gross Taxable Salary $100,000
Less Tax and Medicare Levy on $100,000 Salary -$26,447
Less Michael’s Expenses -$9,095
Net Benefit to Michael after his expenses $64,458
Scenario 2 – With Salary Packaging
Total Gross Salary $100,000
Less Michael’s Expenses (deducted before tax) -$9,095
Net Taxable Salary $90,905
Less Tax and Medicare Levy on Net Salary -$22,945
Net Benefit to Michael after his expenses $67,960
Therefore, by salary packaging Michael will receive an additional $3,502 in his pocket each year.
Note: the above calculations do not take into account any administration fees charged by providers of salary packaging arrangements. For the purposes of the above calculations we have assumed the benefit provider is not entitled to claim GST credits.