Important Changes to Salary Packaging and HECS / HELP
The common reason why hospital and non-for-profit staff who salary package receive a tax bill is because they have a HECS/HELP debt.
This is due to the different way payroll and the ATO calculate your income for HECS/HELP.
For example, currently, someone earning $60,000 a year has the following outcomes:
|Prior to Salary Packaging||With Salary Packaging $9,010p.a.||Benefit in the pocket|
|Reportable Fringe Benefits||$0||$17,000|
|Adjusted Taxable Income (includes fringe benefits)||$60,000||$68,090|
|Amount of HELP/HECS repayment required||$2,400||$3,064|
|Tax||$12,247||$9,138||$3,109 ($120 received fortnightly)|
|Amount Payroll Automatically Withholds from your pay||$2,400||$0 (payroll look at taxable income. The ATO look at Adjusted Taxable Income)||$2,400 ($92 received fortnightly)|
|Tax Bill||$0||$3,064||-$3,064 (Bill at tax time)|
The problem above is that, in this example, payroll stopped holding any money for HELP/HECS, so at tax time the ATO handed over a bill of $3,064 because they had collected nothing throughout the year.
The New Problem
The changes coming in on 1st of July 2018 are a major shift to the HELP/HECS repayment brackets, including people earning a lot less ($37,010) now being affected by this problem.
And it is not just people who use to fall under the HELP/HECS repayment threshold that are affected. There are new brackets at the top end. Doctors and nurses on a higher income might now get a surprise $2,000 tax bill with the introduction of brackets like the 10% repayment at $131,989
The generally recommended solution is to calculate the correct amount of HELP that needs to be withheld and instruct your payroll to send the right amount of the ATO. This will mean while salary packaging still leaves more money in your pocket, it won’t cause a nasty tax bill come tax time.
Alternatively, if you are a strong, disciplined saver you might want to calculate the likely bill and make sure you have that saved in your offset/mortgage redraw for tax time.
Important note: The solution is not to cancel or not to start salary packaging. The tax savings almost always outweighs the additional payment you need to make to your HELP/HECS (which is not as bad as paying tax anyway).
How GPA Financial Planning Can Help
If you would like help calculating the new amount of additional HELP/HECS for your instructions to payroll, GPA Financial Planning offers over the phone/online web meeting reviews for $50. You can book this review online here.