Salary Packaging Worked Example – HPC

Jim is currently employed by a Health Promotion Charity. He is thus eligible to salary package up to $15,899.93 worth of GST Free fringe benefits per FBT year.

Jim  would like to salary sacrifice his Mortgage payments.

EXAMPLE

Jim is paid a total salary of $60,000 (plus superannuation). The tax Jim currently pays on $60,000 is $12,247 (including Medicare levy). This results in Jim receiving an after tax cash amount of $47,753 per year from which to pay all his Mortgage payments, bills and living expenses etc.

After Jim enters in to the salary sacrifice agreement for his Mortgage payments, Jim’s new taxable salary is $44,101 ($60,000 – $15,899). The tax payable on this amount is $6,762 (including Medicare levy) leaving Jim $37,339 in after tax cash.

As Jim is employed by a HPC, the $15,899 paid in Mortgage payments (as fringe benefits) are tax free.

The benefit to Jim of salary packaging his Mortgage payments is the difference between the tax paid on the original salary versus the tax paid on the reduced packaged salary. This amount is $5,485 ($12,247 – $6,762).

Jim’s new total after tax salary package is now worth $53,238 ($37,339+ $15,899).

If Jim was not employed by a HPC, the equivalent gross salary Jim would need to be paid to take home $53,510 after tax is $68,375. By salary packaging his Mortgage Jim has given himself a pay rise equivalent to $8,375 before tax.

This is summarised in the table below:

Worked Example HPC

* 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.