Salary packaging savings boosted by electric vehicle rule changes

Millions of employees can save thousands of dollars a year by paying for work-related expenses with pre-tax wages, and rule changes have made it more attractive.

It’s good to calculate your potential savings from salary packaging. Picture: iStock

Salary packaging to save money is experiencing a renaissance as government policies around electric vehicles push extra cash into peoples’ pockets.

It has also benefited from growing interest in superannuation and the savings available from using pre-tax pay strategies to get richer.

People on high marginal tax rates pocket the biggest savings, which means the stage three tax cuts from July 1 will reduce some of their benefits because the 30c in the dollar tax rate will expand to $200,000 of annual income.

Salary packaging company Smartgroup services businesses employing more than 1.5 million people and says most non-profit groups – which have a fringe benefit tax exemption that makes packaging more beneficial – offer it to employees.

Smartgroup’s Sophie MacIntosh

It says many government departments offer salary packaging and more private businesses are too amid cost-of-living pressures and tax benefits around buying electric vehicles.

Smartgroup executive Sophie MacIntosh said her firm serviced “everyone from not-for-profits, hospitals, schools, state and federal government through to corporates of any size”.

“A lot of people don’t realise they’re eligible for salary packaging, and how much it can help them financially,” she said.

“The benefits available to you depend on your industry. More and more employers are choosing salary packaging to provide benefits to their employees without costing the organisation anything.”

Ms MacIntosh said the business had seen steady growth. “Awareness of salary packaging is growing among the public, particularly in the corporate space, potentially driven by the cost-of-living squeeze,” she said.

Chartered accountant and Mr Taxman founder Adrian Raftery said “packaging” wages via salary sacrifice into superannuation was much more tax-effective than paying up to 47 per cent tax on wages.

“There is a definite benefit there of getting extra money into super and only being taxed at 15 per cent instead of your marginal tax rate,” Dr Raftery said.

Other packaging benefits could depend on people’s employers and fringe benefits tax, Dr Raftery said.

He said since fringe benefits tax was introduced in the 1980s there had been many rule changes, and in recent decades the idea of salary packaging a car had lost some lustre and value.

However, government changes that made electric vehicles exempt from fringe benefits tax had changed the game dramatically.

“I can see a benefit again in why you would want to package – I’m in favour and I am considering it myself in terms of my next car,” Dr Raftery said.

Salary packaging electric vehicles is surging in popularity. Picture: Justin Sullivan/Getty

“You do not pay FBT if the car is a zero or low emissions vehicle which was first purchased after 30 June 2022 and luxury car tax has never been payable on the car.”

Salary packaging company websites can help people estimate their savings. For example, packaging a new Tesla Model Y potentially saves $4200 a year for a person earning $80,000 and saves $4700 a year for a person earning $150,000.

Dr Raftery said people considering salary packaging should “seek advice because it’s a complex area”.

“You want the experts to do the actual calculations for you,” he said.

Smartgroup’s Ms MacIntosh said the federal government’s electric car discount policy had made EVs much more affordable through a packaged lease.

“The federal government’s EV policy has made a big difference, with EVs moving from 2 per cent of our vehicle orders in 2022 to over 40 per cent in 2023,” she said.

“With EVs becoming more readily available, cheaper and with battery technology, range and charging infrastructure improving quickly, we will continue to see more Australians switching to EVs and leasing will reflect that.

“Beyond cars and EVs you can also package items you need for work, like headphones, laptops, iPads, travel, and professional development, potentially saving you 30 to 50 per cent.”

Originally published as Salary packaging savings boosted by electric vehicle rule changes