Cost of living Qld: Salary sacrificing grows in popularity

An increasing number of Queenslanders are turning to a useful method of maximising their wages amid cost-of-living pressures. FIND OUT HOW

The number of Queenslanders salary-sacrificing has risen by over a quarter, as people look to save money amid cost-of-living pressures.

The data from Australia’s largest salary packaging provider, Smart Group, found a growing number of Sunshine State residents were using the tool to save on everything from mortgage repayments and car leases to meals and entertainment.

Smart’s Anthony Dijanosic said: “With cost of living pressures biting, Australians are looking for ways to save money and using pre-tax dollars to stretch their pay packet further just makes a lot of sense.”

Salary sacrificing, or salary packaging as it is also known, involves paying for certain items with pre-tax income, rather than post-tax, reducing one’s tax bill and resulting in a higher disposable income.

The benefits are often handled or supplied by a third party, which take a small fee from the employee.

Those in the not-for-profit and healthcare sectors are able to receive the broadest range of benefits from salary sacrificing due to government incentives to entice people into those necessary, yet generally lower paying professions. These include claiming grocery bills, rent, mortgages, cars, education, holidays, entertainment and food, among others; while those who work for corporates or government departments are more limited by what the employer offers, with salary packaging usually restricted to the likes of cars, education expenses, laptops and phones.

“If you’re a charity worker on $65,000 a year and you take advantage of all of the various caps that the government has in place, you can actually take home close to an extra $6000 per year after tax, that’s like a 17 per cent pay rise for those workers,” Mr Dijanosic said, with benefits changing depending on the job and sector.

“If you’re a nurse on $70,000 and you do the same thing, you can take home an extra $3000 by salary packaging.”

Townsville, Brisbane and Toowoomba were the top areas for those salary sacrificing, and while 59 per cent of Queenslanders who salary sacrificed used it to pay mortgages, rent and everyday purchases, there was a growing number choosing it to help with credit card repayments.

Not-for-profit worker Sarah Badman salary sacrifices her mortgage, superannuation, meals and entertainment. Picture: Nigel Hallett

Mark O’Flynn from independent financial advisory firm Oxlade Financial in Newstead said those in the not-for-profit and healthcare sectors could salary sacrifice up to $15,900 a year, making it a “no-brainer” with cost of living rising.

However, he warned that not all salary sacrificing was worth it.

While employees looking to salary-sacrifice on a new electric vehicle or hybrid could potentially save up to $20,000 thanks to government incentives, Mr O’Flynn said the benefits weren’t there for those choosing petrol or diesel-powered cars.

“Outside of EVs and plug-in hybrid we would have steered our clients away from novated leases because a lot of the tax benefits have been whittled away with tax rulings,” he said, revealing that those on novated leases usually paid higher interest rates on the vehicle.

“You can still do calculations and there’s marginal savings but personally and professionally we think a lot of them get whittled away by the fact that then people go and actually buy something they wouldn’t have necessarily bought, as in, they go and buy a new car and maybe they get the higher model or they might not negotiate as hard as if they were paying with cash.”

He warned there were also potential issues with paper work if the employee left their company as the car was leased through their employer.

He said salary sacrificing into superannuation was one of the smarter choices for the long term as those on higher salaries could dramatically reduce their tax bills, however, he insisted that employees needed to consider that they then most likely wouldn’t be able to access that money until they were 60.

Mr O’Flynn said salary sacrificing generally worked best for workers on $135,001-$190,000 who were paying 37 per cent tax as it would lower their taxable income.

Brisbane-based charity worker Sarah Badman salary sacrifices up to $15,000 of her mortgage a year, some of her superannuation, plus up to about $2500 in entertainment, holidays and dining out and said it was a tremendous help with cost of living.

“It’s over $100,000 over the last decade minimum that I’ve been able to earn tax-free, so it’s a significant amount of money,” she said.

However, she warned others to do the calculations correctly first or seek independent financial advice as she was left with a considerable tax bill after not accounting for her HECS.

“There’s been maybe two years where I’ve ended up with a significant tax bill because I haven’t quite got it right,” she said. “You have to calculate that, which can be tricky.”

“It’s definitely worthwhile but definitely either do your own research or seek professional financial advice first.”

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Originally published as Cost of living Qld: Salary sacrificing grows in popularity