Archive for November 25th, 2011

Salary Packaging and HECS/HELP – what you need to know!


Hi Blog readers – Simon Ellis here guest posting about HECS/HELP and Salary Packaging.

Our customers often ask about how salary packaging impacts outstanding HECS/HELP debts. Let’s take a closer look.

Please bear in mind that the following analysis only relates to employees of Public Hospitals and not-for-profits who are able to access the threshold/cap benefit.

So what do you need to know?

Well, the fundamental message is as simple as this: salary packaging the threshold/cap benefit will save you money overall but will also increase your HECS repayments. This is best explained by example: the impact of packaging the $9,095 threshold by Public Hospital employees who have an outstanding HECS debt is summarised in the table below:

Taxable Salary Take-home pay without salary packaging Take-home pay with salary packaging Annual savings by
salary packaging
Increase in take-home pay Additional reduction in HECS/HELP loan balance Total savings
$35,000 $30,125 $31,626 $1,501 $0 $1,501
$40,000 $33,850 $33,885 $35 $1,915 $1,950
$45,000 $37,275 $37,595 $320 $2,381 $2,701
$50,000 $38,700 $40,960 $2,260 $606 $2,865
$55,000 $41,625 $43,530 $1,905 $985 $2,890
$60,000 $44,500 $46,336 $1,836 $1,075 $2,910
$65,000 $47,325 $49,072 $1,747 $1,164 $2,910
$70,000 $50,100 $51,757 $1,657 $1,253 $2,910

The above table shows two important things:

  1. that take-home pay increases as a result of threshold packaging activities at most salary levels even after the increased HECS payments are factored in, and
  2. that even where the HECS repayments ‘use up’ most of the salary packaging savings the packaging still means that HECS debts are being paid off faster using funds that otherwise would have gone to the taxman.

It’s win-win. Money that otherwise would have gone to the ATO as tax is instead used to pay down your HECS debt, and even after this there are still extra tax savings left over for most employees.

However it’s not all smooth sailing because the additional HECS amount is generally not collected from your salary during the year but is billed by the ATO as a lump-sum at tax year-end. This can put a serious dent in your bank balance unless you have prepared for it by setting money aside during the year.

If this sounds like something you can handle then get in touch with Smartsalary ASAP because tax savings wait for no one. Also, please keep in mind that the above information is general advice only.

Leave a comment here.


Deven Billimoria
Chief Executive Officer
Smartgroup

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