If you work for a not-for-profit organization, chances are you are aware of salary packaging. Salary packaging is your way of maximizing your take-home income and paying less tax in the process.
In this review, I will unpack what Salary Packaging is, CBB Salary Packaging, the benefits of CBB salary packaging, Eligibility for Salary Packaging, and my own personal experience, having been a customer of CBB for 7 years.
This article will explain the benefits of CBB salary packaging from the viewpoint of routine salary packaging, workplace vehicle packaging, and meals entertainment and accommodation.
Other salary packaging and salary sacrificing options, such as contributing to superannuation, will fall outside the scope of this article.
What is Salary Packaging?
Salary Packaging greatly increases your take-home or net pay as it reduces your overall taxable income. Working in the not-for-profit sector has several benefits with the option of salary packaging being one of them.
Think of salary packaging as a savvy money-saving strategy. Instead of receiving your entire salary in cash, you can allocate a portion to cover specific expenses such as a workplace car, rent, a salary packaging card for daily expenditures, or even your mortgage.
The brilliance lies in the fact that the money allocated for these purposes is not subject to taxation and is deducted before taxes are applied.
So, you end up with more money in your pocket because you pay less tax. It’s a win-win because you still get what you need, and you get to keep more of your hard-earned cash.
Who Are CBB Salary Packaging?
CBB Salary Packaging, an Australian company, specializes in delivering salary packaging services, with a primary focus on not-for-profit organizations and their employees. Their expertise in salary packaging allows them to collaborate with individuals and organizations, helping optimize finances within the not-for-profit sector.
CBB customizes salary packaging arrangements to align with the specific needs and objectives of their clients, facilitating a reduction in taxable income and potential tax savings.
It’s important to note that while CBB Salary Packaging doesn’t provide direct, personalized financial advice, they do assist clients in comprehending potential salary packaging amounts.
Additionally, they offer guidance on adjusting tax withholdings, particularly for individuals with HECS debt, as “grossing up” may necessitate increased contributions to their HECS debt.
Through this grossing up process, individuals can expedite the repayment of their HECS debt and concurrently reduce their tax liability.
It’s worth mentioning that CBB Salary Packaging does not offer advice on the impact of salary packaging on child care subsidies, child support, student debt, or Centrelink payments.
Salary Packaging Eligibility
Individuals employed in the Not-for-Profit sector have the option to incorporate salary packaging into a portion of their earnings. While this can be a favorable arrangement for many, it is crucial to grasp the comprehensive impact of such a decision.
Not-for-Profit organizations can package up to a maximum of $15,899 annually, with an additional $2,650 allocated for meals and entertainment. This time frame spans from April 1st to March 31st of the subsequent year.
Effectively, this translates to a reduction of an individual’s taxable income by $15,899 per year. For example, an individual earning $100,000 annually would be taxed on $84,101 per year if they choose to package the full $15,899.
It is important to note that this arrangement is applicable per Not-for-Profit employer. In personal cases, one can leverage the $15,899 benefit for each employer. However, understanding the financial ramifications and seeking independent financial advice is crucial.
In essence, Salary Packaging serves as a substantial incentive for those in the not-for-profit sector, especially considering the traditionally higher remuneration levels in the For-Profit sector.
Salary Packaging Benefits
From an employee’s standpoint in Australia, salary packaging provides several compelling advantages.
Firstly, it delivers significant tax savings by enabling individuals to allocate a portion of their pre-tax earnings to various expenses such as loans, credit cards, rent, bills, utilities, or everyday expenses (facilitated through mechanisms like the CBB Salary Packaging Card).
This translates to more money in the employee’s pocket at the end of the day, as the funds are deducted before taxes are applied.
Salary packaging is a strategic move by the government to enhance the financial appeal of non-profit organizations to employees. In contrast, the for-profit sector, encompassing entities like banks and mining companies, is primarily driven by financial profit.
Consequently, these entities often have more substantial financial resources to offer competitive remuneration and attract employees.
Non-profit organizations, guided by mission statements and objectives that may limit their financial capabilities, face challenges in providing comparable remuneration. As a remedy, the government employs salary packaging as a tool to augment the take-home pay of those working in the non-profit sector.
My Personal Experience With CBB Salary Packaging
I’ve been salary packaging with CBB for over 7 years while working for various non-profit employers who all chose CBB as their salary packaging provider.
Throughout this period, I’ve had multiple arrangements. My most common setup involves optimizing the $15,899 allocation, directing $611.50 fortnightly towards my home loan.
In recent years, I’ve also started using the CBB salary packaging Meal Entertainment and Holiday Accommodation card, which has an additional annual limit of $2,650 on top of the $15,899 allocation.
Personally, I prefer loading a lump sum onto the card instead of making weekly deposits. This approach gives me flexibility for larger purchases and ensures the card won’t decline for small expenses like coffee, especially if payroll processing is delayed.
When I initially joined CBB, the waiting period between correspondences was 2-3 business days. However, this has now extended to 5 business days. Consequently, if you’re looking to initiate a salary packaging arrangement, it might take 2-3 pay cycles, depending on your pay frequency.
Salary Packaging a Vehicle and The Considerations.
This section will discuss a workplace vehicle arrangement in which you do not own the vehicle at any point, highlighting the distinctions from a novated lease agreement.
Has your workplace offered you a car as part of your salary packaging?
When contemplating salary packaging a vehicle, it’s crucial to weigh two key aspects of the arrangement: the regular payments and the remaining salary package amount.
While the total available for packaging is $15,899, this figure diminishes when incorporating a vehicle. The adjustment is not as straightforward as deducting the fortnightly car payments from the $15,899.
What are the Fortnightly or Monthly Payments for the Use of the Vehicle?
Salary packaging a vehicle typically involves making a regular fortnightly or monthly payment for both private and work-related use of the vehicle (terms may vary). This payment typically covers all associated costs, including fuel, servicing, registration, insurance, and others.
Lease agreements for salary-packaged vehicles typically span 2-3 years or are contingent on reaching a specific kilometre limit (e.g., 60,000km).
Once the lease term concludes or the kilometre limit is reached, the employee returns the vehicle to the employer, who can then replace it with another vehicle.
It’s important to highlight that in a traditional salary packaging arrangement, the employee holds no ownership rights over the vehicle, and there is no obligation to purchase the vehicle at the end of the term.
This distinguishes it from a novated lease arrangement, where a ‘balloon payment’ may be required at the end of the term. In a novated lease, the employee has the option to buy the vehicle outright for a predetermined amount, often a substantial sum, enabling them to own the vehicle outright.
CBB Salary Packaging Amount
The available salary packaging varies based on the specific vehicle arrangement. Your salary packaging organization can inform you of the maximum amount you can package based on your chosen vehicle.
Typically, this amount is considerably lower than the $15,899 available for packaging a car, as having a vehicle and salary packaging are both categorized as fringe benefits.
These specific fringe benefits are capped at $30,000 per year. For detailed information on different types of fringe benefits, you can refer to the ATO website.
In my time with CBB, they’ve been great. I hardly ever need to get in touch because they’ve never missed a payment. I only reach out when I’m switching home loans (since my packaging goes to my loan) or when I’ve switched to higher-paying roles and need to adjust voluntary contributions, or if I’ve changed employers entirely.
If you’re in the non-profit sector, definitely think about salary packaging. It seriously boosts your take-home pay.
This article has been written based on my own personal experiences and may not be reflective of your situation. It is important to consider the tax implications of salary packaging so seek individual qualified financial advice where appropriate.