She's On The Money - Nice (salary) package

Episode Date: April 6, 2021

Salary packaging - what is it and is it right for you? Join V + G today as they get to the bottom of salary packaging, including the tax benefits, the Super benefits and the things you need to be mindful of.Do you love the podcast SICK and want more SOTM? Course ya do. Join our Facebook page to share your money wins and money confessions, follow us on Insta for daily inspo to keep you on track and DEFINITELY subscribe to our newsletter https://www.shesonthemoney.com.au/newsletter the written recap of the pod's key takeaways, including some bonus bits you won't want to miss.Finally, if you're in a money mess and need help untangling the muddle - we've got you sorted - simply record your question and send it through to us at [e-mail] and you may just end up on the podcast!The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine is an Authorised Representative of Australia Pacific Funds Management Proprietary Limited ABN 34 132 463 257 - AFSL 339151.See omnystudio.com/listener for privacy information.

She's on the money. She's on the money. Hello and welcome to She's on the money, the podcast for millennials who want financial freedom. Paying tax, as Victoria Devine often says, is a privilege here in Australia. But despite its importance and its necessity, I think we'd all probably be lying if we said we didn't groan a little bit each week when the taxman does dip his little fingers into our hard-earned cash and take a good portion away.

Am I right, V? All right, well, that's not exactly how it works. But yes, carry on. But what if there was a legal, rigid-edge way of decreasing the amount of tax we pay by packaging our salaries? That is a rigid-edge way of decreasing the amount of tax you pay. And it's a real thing. So it's called salary packaging. Makes sense. And joining me to get to the bottom of it all

is financial advisor, Victoria Devine. Victoria, let's dive in head first. Salary packaging is a very hot topic in our community, and I do have a lot of questions to get to today. But to start us off, what actually is it? I like this topic because it has been requested so many times. The community literally goes wild for salary packaging questions and what they can and can't package but also I think it's important to point out that if this isn't available to you that's okay like often this is only available to government workers and healthcare workers and certain professions so if it's available to you well done this episode is for you if not interesting to know about but also it definitely isn't something that every single employer does

but if you don't have salary packaging and you would love to have it every employer in Australia is going to hate me now, have a chat to your employer and just see if they can do anything about it. If that is something that is of value to you. So to jump straight in, which I think is the only way to jump in, you can't dive backwards, but salary packaging is often known as salary sacrificing. And it's basically a way of paying less tax by receiving a portion of your pre-tax income in the form of different benefits like devices or cars or superannuation contributions. As we know in Australia, the lower your income, the less tax you pay, which is a bit of a money win, but kind of in a backwards way. And salary packaging is a way of legally paying less tax

while still being on the same salary as you were before, but instead of only income, you've lowered your income plus benefits, which is kind of cool. The typical way that we think about our expenses would be to pay for them once we receive our income into our bank accounts and once tax has been removed from that income but salary packaging actually means that you can cover some of your expenses like your mortgage your rent or a new car if you listen to that episode a couple of weeks ago by using your pre-tax income which may leave you with more disposable income each week to work with which kind of sounds like a dream it does sound like a dream so how does this actually work with your employer do you just sit down and have the chat

with them or is it only some workplaces you're like look mate i want salary packaging and then you get it no that's absolutely not how it happens most larger workplaces will work with you to establish a salary packaging plan as long as it works for both parties and you can easily check with your employer by having a conversation with your hr department but smaller businesses might not offer this so honestly it's best case scenario like check see if they do but it is a bit of a hassle and it can be a bit of a muck around for smaller businesses. So please don't slave over your employer if they don't offer it. And I feel like it's completely reasonable to not. If it is fantastic, it's a benefit of your employment. So all businesses are different and some may only

offer some benefits. So some might say, yep, cool, you can make additional super contributions, but you are not allowed to salary package a car or your phone or your laptop or whatever. And at the end of the day, it's actually an arrangement agreed upon by you and your employer generally before you start working so it's not usually set out halfway through your employment but you know we can always renegotiate we've listened to the renegotiate your salary podcast before and if you haven't go back and listen to them but once it's established a set amount of your pre-tax salary will be taken and then allocated to your chosen benefit for the course of whatever time period that you've both agreed to now you don't necessarily have to do it before

starting a new workplace it's just best practice but once you've established that package and what it can look like the benefits will come from all future work rather than you getting to claim an accrued leave payment etc yeah so that's if you've already started working in a place and you're like oh salary packaging sounds nifty i've got four weeks leave i want to turn that into a car that's not a vibe that's not a vibe that's not a thing that's entitlement stunning okay different story so is this a thing that is accessible only for full-timers or can part-timers and casuals get involved as well. So part-timers can and casuals can in certain circumstances but they're honestly the best way to work out whether this is applicable to you is to talk to your employer or your HR

department. Yeah because it's going to be different for everyone. Absolutely it is. So you mentioned cars and devices before what exactly can we ask for and what can we package? Oh my gosh there are so many things you can package you can literally package so much stuff one super great room for our future to aged care and disability costs for loved ones so obviously not for you because you're currently working car parking child care clothing you can get your income protection insurance my friends you can get financial advice wild groceries health insurance premiums you can organize holiday accommodation and venue hire laptops rates rents mortgage like literally your utilities bills there are so many things you can salary package but again I've just listed off this

very attractive list they're not all available to everybody it's just different industries and sectors. Speaking of different industries and sectors I read that the healthcare sector maybe government sectors get a better deal here can you flesh that out for me? They do get a pretty good deal workers in non-profit slash charity and people who work in the public health system they typically receive the best salary packaging benefits available which is very nice and they actually include things like paying your rent and packaging your rent and credit card expenses and mortgages and more and the reason that that is actually available apart from being like a really nifty thing to do is obviously that the government wants to make it really attractive to work in

these spaces so they give a whole heap of other benefits which at the end of the day does make it even more attractive to work there. Absolutely. So in your line of biz, Vicky D, do many of your clients opt for salary packaging? A lot of them do. Yeah, it's actually very common. Depends on what it is. So I've got a lot of clients who do work in healthcare. I've got doctors and nurses or a few doctors and nurses and some of them salary package. I've got some people who salary package their rent, some people who salary package just like a food and beverage card, but there's certain rules and regulations. So I know that a couple of them can't get groceries, but they can go dine out at a restaurant. So it's going to be completely dependent on your

rules and regulations for your industry and your salary packaging program. So I do apologize that I can't give you specifics. I wish I could, but alas, I cannot. That's why this is a general advice podcast, Georgia, but also it's going to be just dependent on your employer as to what you can access or not but the best thing is to literally just ask them and see how much advantage you can take of it essentially like if it is available to you and you can salary sacrifice your rent and you're not my question is why on earth are you not yeah because that kind of makes a lot of sense definitely if you're paying rent anyway I would actually preface this and just say hey cool I get that it sounds really attractive and rah rah but I would only be salary sacrificing

sure thing costs so like rent and you know food and beverage costs because i have seen a couple of people go oh like i put heaps on a food and beverage card and now i spend more going out for dinner because they can only spend yeah yeah yeah and therefore it's actually not a good financial decision for them but it sounded like a good idea at the time because obviously it's tax effective and they feel like because at the end of the day if i gave you like a card george and said hey each each week there's 200 bucks on here and you have to spend it out you'd feel like it's free money as opposed to your income yeah i think the mentality around that just needs to settle a little bit because we need to be making the right financial decisions for us not just going oh my

gosh i can salary package and get 30 off of whatever yeah yeah and i think that yeah it's not always the best financial decision but if your salary packaging sure thing costs like you're actually paying your mortgage or your rent or your bills or things that actually have to happen great i also see people slip down a little bit of a slippery slope when they're like oh salary package a brand new car and then they get a more expensive car because they feel like they're getting more value and that's also a slippery slope that i don't want you guys to slide down yes okay no sliding down there um b as i mentioned at the top you often say that paying tax is a privilege and the more tax we pay it's kind of a good thing can you explain that logic again for

anyone who's new to the show and honestly it just makes us feel good yeah look it's probably not the most common mindset that exists but at the end of the day it is the baseline and it is not something that was a surprise to you you didn't go and get a job and then find out later that you had to pay tax this has always been the standard and I think that we need to start seeing our take-home pay as our take-home pay and instead of going oh well I earned sixty five thousand dollars that's like well I get that you earn that but that is not how much you take home and I think we really need to reset this frame of mind that that's what you were owed because it feels a little bit entitled and I know that I'm probably being quite opinionated and potentially rubbing people

the wrong way but I feel incredibly lucky to live in Australia like we have so many privileges that are afforded to not many people across the rest of the world we live in this beautiful country we have beautiful services and incredible health care that we have access to for free we have roads that are safe to drive on we have police that look after us like i know that a lot of people are going to be like oh it's tax like it's stooge bro like i get that frame of mind but at the end of the day tax isn't going anywhere and i think what we need to do is shift our mindsets to one of being grateful rather than being expectant that you know people owe you something like we are so lucky to live in this country and to have such a beautiful lifestyle and at the same time a lot of

us might have experienced poverty or disadvantage or you know so much growing up but not ever in comparison to what happens overseas like there is no support system in a lot of other countries and I think that you know I just feel very lucky to be paying taxes and the more tax you pay back to your question Georgia just means the more you're earning yeah that's something you should be grateful for too like the higher your taxable income the better your lifestyle arguably and the more money that's actually coming into your back pocket and I think that the tax system tries to be really fair and I know that there are a lot of things that a lot of people don't agree with and please don't get me wrong there are a lot of things that I don't love about it but I do think

that we you know live in a country where we just need to be really grateful for it and I think that if we can shift our mindset it actually helps us better than anybody else like we're not here going oh my gosh ATO I'm so grateful for you like no one's gonna say that but like I just feel very lucky to be in a situation where I do earn money and I can give back to my community and my society yeah that's it isn't it yeah it's we're just lucky do you yeah no that's a very good reminder now we will be back after a very short break to chat super fringe benefit tax and also the potential pitfalls of salary packaging my friends so please don't go anywhere that sounds riveting hello again friends we are back surprise it's us surprise uh if you guys are loving the podcast

today which obviously you should be obviously you're very welcome um don't forget that the podcast isn't the only place you can find us we're also on instagram facebook youtube tiktok got a newsletter. How many people are in the Facebook group now? 150,000 people. Get out of town. It's insane. How lucky are we? I feel like it was like two months ago that you did that little photo shoot with 100,000. Useless. Useless. Fruitless photo shoot because it didn't get to ride out the web. Redundant. Put it in the beam. It was cute though. It was cute. Thank you. So join us there guys if you're not there already but moving back into the show the chat and salary packaging today. So superannuation and its importance is something we do talk about

a lot at She's On The Money because we are all about putting future you first. So how can we use salary packaging to our benefit in that sense? All right. So salary sacrificing into super, it's a mouthful to spit out, but it is definitely something to consider if you are trying to reduce your taxable income at the same time as trying to increase your retirement income genius right but also obviously only if this works for you personally an example of how this works would be let's just say for example you earn seventy thousand dollars per year before tax you could opt to put ten thousand dollars of that into super and you'll then only pay income tax on sixty thousand dollars huge which means your income would be reduced to sixty thousand dollars but

the benefit is you're paying less tax and your super contributions are still taxed at 15% instead of 32.5%, which the average income earner would be paying anyway, which I think is kind of attractive. So to preface that, any contribution you make to superannuation up to that $25,000 superannuation cap is going to be taxed at 15%. So you can actually claim that later. So say you got that, and this is just me going on a sidetrack just to make sure that there's no confusion so say you got extra money in your account and you're like oh actually i wish i'd put that into super you can you can just transfer it over and a couple of weeks ago and this isn't sponsored again we're talking about b pay and being able to b pay additional super

contributions into your superannuation fund which is kind of handy but you can then claim it at tax time and get that difference between that 15 and that 32.5 back oh so that's what happens at tax time so that you end up in a good financial position, which is a bit of a money win, I think. Huge money win. What's the $25,000 cap? Is that per year? So that's per year. Look, I will go into it in more detail on more super specific episodes, which I know you guys have been asking for. So let's get to them at some point. But essentially, you can contribute up to $25,000 per year and make use of that 15% tax guarantee. Do you do that?

I don't do that. Why don't you contribute that $25,000 to Super B? Because I'm poor. No, that's absolutely not the answer. So the reason I don't is because, one, I just don't have that free cash flow at this point in my life. I wish I did, but also at the moment my focus is on creating an investment portfolio outside superannuation

because I want to retire before 65. So as much as we talk about super being really, really great and it is honestly the closest thing that we have in Australia to a tax haven, which is our money win, and it is really great, I don't want to put my money in there yet because I can't access it until I'm 65 so I'm definitely contributing to super but at the rate that my income is at which is relatively low at this point in time if I'm brutally honest because I keep putting all my money back into she's on money to watch it grow yeah but I think it's really important to note that I don't do that

but that's a personal choice and I'm happy to share that purely because I want you guys to know that even though these super attractive benefits exist not everyone is making use of them for whatever reason that makes the most sense to them. Gotcha. That makes sense. But if you want to be contributing more to super and you see that as a really great way, like salary sacrificing is a fantastic way to make use of that. It is definitely something I want you to know and want you to know you have access to so that if it does work for you, you can use it. Cause I would hate to think that you get to, you know, 20 or 30 years down the track and you'd be like, oh my gosh, I didn't even know I could do that. I wish I could have done that. And then I would be silly for not

having shared it with you 100 exactly now fringe benefit tax v is something that bt bt it came up a lot on my google searches as is it because you were googling fringe benefit tax i was googling salary packaging right quite a few times um so what what is fbt so fringe benefit tax is paid by employers on some benefits that they provide to their employees so it's completely separate from your personal income tax and the amount the employer will need to pay is calculated on the taxable value of the fringe benefit so they need to pay a tax on the benefit that you get which is why a lot of employers are like oh i don't really know if i gotcha i'm that keen on this benefit because it doesn't benefit me as well as you but businesses who are providing fringe benefits can

usually claim an income tax deduction on the cost and their fbt that they pay so usually they can also claim GST credits too. So I'm not saying it doesn't equal out in the end, but there's just more drama associated with it in a way. Okay. Now, according to the ATO's website, which I just had to look up because obviously I know what FAT is off the top of my head, but like, let's get super specific. But examples of fringe benefits include allowing an employee to use a work car for private purposes, giving an employee a discounted loan, paying an employee's gym membership, providing entertainment by way of free tickets to concerts or music festivals etc which would be nice sorry gee i haven't haven't hit that up for you or reimbursing expenses incurred by employees such

as school fees or giving benefits under a salary sacrifice arrangement with an employee so that would just cover everything yeah yeah the following things which are not fringe benefits though are salaries and wages share purchases under approved employee share acquisition schemes employee contributions to complying super funds employment termination payments payments for the amount deemed to be dividends under div 7a which you guys are just going to go div 7a yeah so it's division 7a which is a tax um law but we're not going to get into that because i just don't think you guys actually care too much like i've found this stuff and now you know what i want you to take from this if you want to sound smart you'll be like okay well a fringe benefit tax it's not

division 7a victoria and if you say that to an accountant they'll be like oh she knows she must be serious accountant okay so a question for you v yeah i love questions from an employer perspective yes salary packaging a little bit of a nightmare or is it a good way of like paying your employees less sort of like what's the vibe look i think it's a good thing and i think it's one of the things that can actually help make your place of employment a little bit more attractive because there's more benefits involved and often they don't actually take up too much more time or energy or money to implement but in saying that every everybody's different and some people might not see the value of them but also some people might not be able to implement

them as easily as others so it's going to be different for everybody gotcha so v what about from a personal perspective from an employee's perspective what are the downfalls of salary packaging because I feel like if it was flawless we'd all be doing it and we'd all know what it was before listening to this episode yeah and I feel like a lot of people do think it is this flawless plan to create wealth and get a better car and I think the main limitation of salary sacrificing that I really want you guys to remember is that first salary sacrificing can sometimes sway us into upgrading things that we don't need to upgrade so we were talking about this before like do you really need a new car or do you just like the idea that you can get a new

car. And sometimes understanding if it's actually worth lowering our salary for a new car, if we bought one two years ago, might not work. But then I think you need to remember as well that these benefits aren't free. It's not, oh, hey, cool. I can add this to my income and my income will increase. And that's not it at all. You're still ending up paying for them. You're just making a sacrifice. So you're choosing that benefit over having extra cash in your account each week or month or year. And secondly, I want you to be really pragmatic and how negative this might sound. And obviously I'm negative Nancy on this podcast, but I want us all to be able to stay afloat if things changed and we lost our jobs or took a pay cut. So would you still be able to make

those repayments on that car if you didn't have an income anymore? And I think that we need to prioritize future us, right? Like if you're looking at salary packaging and you're like, oh my gosh, I'd love to salary package, you know, some food and beverage, like great, fantastic. But can you tell me if you have an emergency account first? Like, can we make sure that future us is financially stable and okay before we make decisions that are a little bit more swayed to lifestyle? Because if you do not have your emergency account set up yet, I'd be doing that. And then I'd be considering any benefits that we can add to that.

Gotcha. So according to the big woman, Vicky D herself. That's such a beautiful name, honestly. growing up i was always like one day people are gonna refer to me as vicky d has anyone ever called you that until this point uh yeah oh i got it a little bit at school no it was it was gross i used to crack it and now i've just given up i'm just laid down let it happen let you guys walk all over me i love you girl um so according to you then victoria divine is celery packaging as good as it sounds and is it something we should be looking at yeah absolutely have a look at it make

sure it works for you if your place of employment offers it and you're not making use of it have a look at that like it's kind of a no-brainer for the things that are fixed costs that you are paying and I mean if you can get your rent on salary packaging money win yeah but if you're looking at it for a new car that maybe you don't need or you're looking at it to add a whole heap of money to a food and beverage car that you can't buy groceries with and can only go out to restaurants like i would have a look at it i'm not saying it's a bad idea i would just make sure that you're making the right money decision for your life beautiful uh so if we do want to look at salary packaging where do we start you start by annoying your employer i'm saying hey matey i was just

wondering what are my options here obviously go to hr if you've got a hr department because they are in charge of all of the salary packaging plans and then just weigh up the pros and cons don't opt for it if you don't need the benefit or would need the money more than that. And if you're still not sure, have a chat with your accountant or a financial advisor for a little bit more tailored information. Simply stunning. All right. So to wrap up today's show, salary packaging is basically a really neat way of paying less tax by opting to take some of our salary in the form of benefits. It is indeed. Not all workplaces will offer it, but lots of the larger corporations will. So it's definitely worth chatting to your place of employment to see what could be possible for you

if you're thinking it could be an option and finally it can be a really great way of bumping up your super if that's your thing but vicky d sorry that just slid out i think that is all we have time for today i would like you to refer to me as victoria catherine devine from here on in catherine kathy oh no kathy d all right i i wish i never said that so we're just gonna head off But before we head off, we'd like to acknowledge and pay respects to Australia's Aboriginal and Torres Strait Islander peoples, the traditional custodians of the lands, the waterways and the skies all across Australia. We thank you for sharing and for caring on the land, which we are able to learn. We pay our respects to elders past and present, and we share our friendship and our kindness. Don't forget, guys, that the advice shared on She's on the Money is general in nature and does not consider your individual circumstances.

She's on the money, exists purely for educational purposes and should not be relied upon to make an investment or a financial decision. And we promise Victoria Cathy Devine is an authorised representative of Australia Pacific Funds Management, Proprietary Limited, ABN 34132463257, AFSL 309151. And a big thank you to Orion John and the engineering team for putting it all together.

The engineering team. well they are technically sound engineers like that's a thing that sounds more legit than podcasters but we would love it if you guys joined our facebook group where literally more than 150,000 of you share your money tips and tricks every single day free of judgment search she's on the money on facebook and join us if facebook's not your thing find us on instagram we're at she's on the money a us and subtle plug do not forget to buy my book for 25 off on booktopia today via the link in our show notes we'll see you on friday guys all right see you soon bye