Timing is an important component to salary packaging because of the mismatch between the financial (tax) year and the Fringe Benefits Tax (FBT) year. The financial year runs from 1st July to 30th June, and is used for calculating most taxes including income tax. The FBT year runs from 1st April to 30th March.

 

 

Choose which tax year you salary package in

The key benefit of this mismatch is choice.  You can choose which financial year you salary package in, because you can use your FBT cap ($17000 general exemption from FBT) after 1st July (actually until 30th March the following year). This is advantageous because you can choose to salary package in the financial year where you have the highest taxable income. Salary packaging when you have a higher income will mean you are deducting at a higher marginal tax rate, and consequently save more tax.

Consider your HECS and MLS obligations

You should keep in mind the MLS thresholds when you salary package, especially if you are utilising two or more FBT cap  in one financial year. Similarly, you might find yourself with a surprisingly large HECS repayment. Keep in mind it’s only a repayment, so at least you still saved on tax.

 

 

Interns can sign up early for salary packaging

Interns have until 30th March to use that FBT year’s FBT cap. Packaging almost all income between starting work and 30th March is a possible course of action that could reduce your tax bill. You can then delay your packaging until July 1st to package maximally in that financial year, where your taxable income is likely to be higher.

 

 

Save your packaging cap if you’re in a low-earning financial year

You should adjust your thinking if you are a new intern, with a low income from working only half of your financial year, or an expectant mother who will be working less going forward. If you will be earning more in the future, you should think about delaying your packaging until after July 1st, so that your income reduction is in your next and higher earning financial year. The comparison below demonstrates that a hypothetical intern (without HECS) could save $765 by moving their general exemption from the financial year when they started work (with only half a year of income – Option 1) to the next (Option 2).

Financial tips for junior doctors
Comparison between salary packaging in a low-earning and a high-earning year

 

 

“Sign-on bonus” for switching hospitals

If you arrive at a new hospital before 3oth March, you will have access to an extra FBT cap for that FBT year. Packaging at a maximal level will allow you to use as much of that extra FBT cap as possible before the end of the FBT year. You can then package again from 1st April. This can give rise to a sign on bonus, because by switching hospitals you gain an extra FBT cap that you would not have received by staying put.  For a resident on $80000 this is valued at $3105 in income tax saved (not including HECS which can increase significantly).

 

 

Rural bonus

A similar bonus effect takes place if you receive an extra FBT cap whilst employed by a rural hospital. Keep in mind that Mildura is private, so no FBT exemption there and no rural bonus. A value of approximately $3105 not including HECS increases is an appropriate reward for trekking out to the country we think!

We hope all these little tips on timing your salary packaging are helpful – however please keep in mind the general disclaimer on the site and get your own financial advice before acting or relying on any of these tips.

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