Worked Example
Peter is paid a total salary of $40,000 (plus superannuation).
The tax Peter currently pays on $40,000 is $6,450 (including Medicare levy). This results in Peter receiving an after tax cash amount of $33,550 per year from which to pay all his mortgage payments, bills and living expenses etc.
After Peter enters into a salary sacrifice agreement for his mortgage payments, Peter’s new taxable salary is $23,950 ($40,000 - $16,050). The tax payable on this amount is $3,052 (including Medicare levy) leaving Peter $20,898 in after tax cash.
As Peter is employed by a PBI, the $16,050 paid in mortgage payments (as fringe benefits) are tax free.
The benefit to Peter of salary packaging his mortgage is the difference between the tax paid on the original salary versus the tax paid on the reduced packaged salary. This amount is $3,398 ($6,450 - $3,052).
Peter’s new total after tax salary package is now worth $36,948 ($20,898 + $16,050).
If Peter was not employed by a PBI, the equivalent gross salary Peter would need to be paid to take home $36,948 after tax is $44,960. By salary packaging his mortgage Peter has given himself a pay rise equivalent to $4,960 before tax.
This is summarised in the table below:
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Peter’s Salary Packaging Comparison
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Before Salary Packaging
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After Salary Packaging
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Total Salary
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$40,000
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$40,000
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Less: Before Tax Mortgage Payments
|
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($16,050)
|
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Total Cash Salary
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$40,000
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$23,950
|
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Less: Income Tax
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($6,450)
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($3,052)
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Available Cash
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$33,550
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$20,898
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Less: After-Tax Mortgage Payments
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($16,050)
|
|
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Remaining Cash
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$17,500
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$20,848
|
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Peter’s Saving
|
|
$3,398*
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* These calculations do not consider the effect of Salary Packaging on Medicare Levy Surcharge, HECS / HELP Payments, Centrelink Benefits, Family Tax Benefits etc. It is recommended you receive appropriate and independent financial and taxation advice before deciding to commence salary packaging.