Salary Packging Example

Salary Packaging can be a great advantage to businesses, it saves employees money while not costing the employer anything extra. The Following is an example of how salary packaging can benefit your business

Jack has a company car worth $30,000. The lease payments are $6,960. Annual running costs are $5,000. Expected annual kilometres are 25,000. The period for which the car is provided is 365 days. The fringe benefits tax calculated on this arrangement would be $3,407.79

If Jack simply leased the car himself, he would have to pay $6,960 in lease payments and the $5,000 in running costs. As these costs would have been paid out of post tax money, he would have to earn $11,960 grossed up for his tax (assuming 43.5%) or 21,168 in pre-tax earnings.

Total Running Costs of The Car:  $11,960

LESS GST credits (11960/11):   $1087.28

ADD FBT on the car benefit:      $3407.79

Total Costs:                          $14,280.51

For the employer to be in the same after tax position Jack would need to forgo 14,280.51.

If he does not salary package the car Jack will need to earn $21,168 pre-tax. If he packages the car he will have to salary sacrifice $14,280.51.

(Assuming a tax rate of 43.5%)

The after tax benefit to him is: ($21,168-$14,280.51)x(1-0.435)= $3891.43

Jack will be $3891.43 better off after tax for salary packaging his car, and this is also highly advantageous to you as the employer as it effectively increases Jack's cash flow by $3891.43 allowing you, the employer, to save that amount in pay rises!

Ask one of our friendly Managers to help in improving your business performance and generate cost savings.

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