Components of Salary Packaging

Salary packaging can be divided into a number of components. But the most important parts of this tool are the motor vehicle allowance and the relocation cost of the employee.

With the help of salary packaging an employee is able to get some part of his/her salary in the form of non-cash benefits. In this system the employee benefits with increased amount of benefits but the total cost incurred by the employer remains the same. That is it can be said that the employment cost of an organisation does not increase at all. t

Generally people have a perception that high salary earners are the ones who benefit from the salary packaging pool. But in reality that is not the case because the number of benefits included in this tool has benefits for all levels of salary earner.

The two most important benefits associated with the tool of salary packaging are the allowances for motor vehicle and the relocation cost.

After a study being conducted it has been seen that almost 70 percent of the employees enjoy the benefit of car with the help of sacrificed salary. This is because of the concessional tax benefit that is associated with this tool.

The general tendency in that tool is that the employer makes payment for the entire cost of the vehicle in the form of Fringe Benefit Tax and they also pay the running cost of the vehicle. In most of the cases it is seen that the benefit which you receive due to the salary packaging is more than the tax associated with the benefit.

It has been seen that with the help of salary packaging an employee is able to save around 3,000 to 10,000 dollars if they buy a car using their pre-tax salary. On the contrary if they would have bought the same car using their after tax salary they would have to shell out a large amount of money. Even the employers are at a profitable position with the help of this arrangement and that is the reason as to why employers are using novated lease compared to the conventional lease.

In the novated lease an employee enters into a deal with the financier to buy a motor vehicle. Under this deed the employer assumes liability for the monthly installment that is paid for the car and the situation is such that the motor vehicle of the employee is considered as one provided by the employer.

Relocation is another major benefit associated with the tool of salary packaging. In this the employer generally pays for the costs which are related along with the relocation of an employee. The cost that is reimbursed by the employer is either given to the employee directly or it is given in the mode of salary sacrifice. Such an arrangement is beneficial for the employee to a large extent because if the employee would have paid all the costs by himself/herself it would not have been tax deductible and in this case they get redemption from tax.