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June 15, 2014 By Mel

The Benefits of Salary Packaging for Medical Professionals

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.

 

Filed Under: Tax Tips, Wealth Creation & Strategy

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