Pay rise unlikely? Try these tax tricks to increase your income

Workers and business owners are using salary sacrifice and salary packaging to reduce tax and attract staff. Here’s how.

Salary packaging a car should save workers tax, but there can be costs.

Getting a pay rise during a pandemic has been tough for many workers, but even those without a generous boss are able to boost their income.

From salary packaging to salary sacrifice and other superannuation incentives, there are tax-saving ways to make extra money from employment that people often miss.

Salary packaging business Smartgroup’s chief operating officer, Sarah Haas, says the feedback her firm consistently hears is “wow – we wish we knew about this before”.

Many people don’t take advantage of salary sacrifice and salary packaging “largely due to a lack of awareness of the opportunities”, Haas says.

Chartered accountant Ricardo Neves from financial services firm dmca advisory says people may not have asked their employer, while others may feel the financial gain is not big enough to be worthwhile.

“However, when structured correctly, or if a number of strategies are implemented, the benefits can increase substantially,” he says.

Check with your boss to see what’s available, and consider these ways to earn extra without a pay rise.

SUPERANNUATION STRATEGIES

Lowering tax lifts your overall income and making tax-deductible contributions to super through salary sacrifice is a popular way to achieve this.

People earning more than $45,000 a year pay between 34.5c and 47c in the dollar – including the 2 per cent Medicare levy – while money going into super is generally taxed at 15 per cent.

Smartgroup’s Sarah Haas says many people don’t know about salary packaging.

An average wage earner who salary sacrifices $10,000 into super can potentially save $1950 in tax each year. This won’t increase their take-home pay but it will inject extra money into their retirement savings.

People can build bigger house deposits using the First Home Super Saver scheme to reduce tax, they can get up to $540 back on their tax bill by paying $3000 into a low-income spouse’s super, and lower income earners can get a $500 government co-contribution by paying $1000 into super.

SALARY PACKAGING

Salary packaging uses pre-tax salary to pay for items you would normally buy with after-tax money, and your tax is calculated on the remaining amount.

“Salary packaging of things like cars, car parks and laptops and other packaging options may only be available to those in certain industries, or at specific workplaces,” Neves says.

“Although salary sacrificing and salary packaging is available to employees in both public and private sectors, the ability to salary package will come down ultimately to the employer as often fringe benefits tax implications need to be considered,” he says.

Smartgroup’s Haas says more employers are using salary packaging as a way to attract and retain workers, and the types of benefits available are determined by the sector.

“Common benefits offered to the private sector include novated leasing (for vehicles), superannuation, work-related items such as a portable electronic device, home office expenses, financial or taxation advice and airport lounge memberships,” she says.

“Certain employers, such as not for profits and hospitals, can offer additional benefits such as salary packaging general living expenses and meals, entertainment and holiday accommodation.”

Haas says someone working for a non-profit group and earning $50,000 can use salary packaging to “take home approximately an extra $5000 a year”.

And a worker who uses salary packaging to lease a $35,000 car can save an average $12,000 over five years, she says.

Ask your boss or human resources department what may be available for you.

INVESTMENT TAX SAVINGS

Structuring investments correctly can deliver extra cash. Neves says his firm sees couples missing out on money because their share dividends and bank interest go the highest earner, attracting a higher tax rate.

“It is always good to ask your adviser about what options could be available to you,” he says.

Ricardo Neves from dmca advisory says tax benefits can multiply for workers.

KNOW THE TRAPS

• Salary sacrificing into super has limits. There’s a $27,500 annual cap on pre-tax super contributions, including employer compulsory contributions.

• Salary packaging a car may cost nothing upfront, but workers pay a lump sum at the end of a novated lease.

• When salary packaging electronic devices such as computers or phones, remember the device needs to be portable and needs to be mainly used for business purposes. Not all employers offer this benefit.

Source: Smartgroup

Originally published as Pay rise unlikely? Try these tax tricks to increase your income