Salary packaging is an effective and above board way for doctors and health care workers to pay less tax.
The easiest way to explain salary packaging is your hospital employer covers the cost of some of your personal expenses, so you don’t have to pay tax on those purchases.
But of course, there’s much more to it.
How Does it Work?
Instead of all your pay going to your bank account as normal, part of your payment is funnelled into an account managed by a salary packaging company aligned with your pay frequency. Then you shop as normal and upon purchasing your items, such as groceries or other items that fit the terms of your packaging arrangement, you collect the receipts and send them to your salary packaging company. They reimburse you for those items in full, from the before tax money you previously gave to them.
It’s a convoluted process, but because the salary packaging company is effectively acting on behalf of your employer when reimbursing you, it works, and you save on tax!
You’re allowed to do this for a maximum of $9,010 for living expense items that attract Fringe Benefits Tax (FBT).
Hospitals Have Their Own Rules
If you’re employed at a hospital, it’s important to learn about what your hospital allows for with salary packaging. Make sure you check what categories are allowed to be claimed, such as rent, mortgage payments, food items and if entertainment is allowed, so you can get the most out of your salary packaging deal.
You may also be able to backdate payments for items purchased prior to starting your salary packaging deal, which is a great way to get the ball rolling.
Observe Spending Habits
Once you’ve set yourself up for salary packaging, keep a close eye on your current spending habits. Now is the time to organise your finances and spending to reflect your future saving goals. Having a tax break can help free up capacity for saving and investing.
Tighten up by removing any direct bank payments you don’t utilise like streaming services or subscriptions. Making these changes helps you spend more on what qualifies for salary packaging or tax deductions.
You work hard for your money, so it’s important to get proactive and think about your future.
Keep Track of Records
Making a claim with your salary packaging company requires proof of purchase, so it is imperative to be organised and on top of receipts.
There are great accounting apps, as Hubdoc and Dext, so you won’t have to hang on to loose papers.
Alternatively, getting organised with an accordion folder to hold onto and organise all of your paper records, whether they be an A4 receipt or detailed bank statement.
Talk to your administrator about what details are needed, such as cost, date of purchase, location, time and itemised list of purchases to enable you to streamline the claim process.
Salary packaging should be considered as part of a tax strategy for doctors and health professionals.
Don’t have a strategy? Start now!
The medical accounting experts at Nitschke Nancarrow are here to help. Get in touch for a free initial discussion about your needs.
The information contained on this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation. Contact us now for a no obligations discussion about your needs.Tags: doctors, salary packaging