Salary packaging can be a powerful financial tool for doctors, but many miss out simply because they are unsure how it works or where to begin. With the right guidance, its actually much easier than you realise.
Salary packaging is a process where you restructure the way in which you take your salary in order to reduce tax. The ‘packaging’ involves paying for certain items in pre-tax dollars, with the balance of your salary paid like normal wages into your bank account, with your regular superannuation contribution and tax withheld.
Here we explain some of the common myths of salary packaging.
Myth 1 – There’s not much benefit to me.
There are many benefits to having an effective salary packaging arrangement, including reducing the tax you pay and increasing your disposable income if you work for a hospital or not-for-profit organisation.
Essentially, salary packaging means that you save tax, which leaves more money in your pocket at the end of the year. This is due to paying for some items in pre-tax dollars, which reduces your taxable income. A reduced taxable income equates to less income tax and more savings!
Depending on your employer, there are limits to how much you may salary sacrifice. Most hospitals have a limit of $9,010 per annum, while not-for-profit organisations have a limit of $15,900. (amounts applicable for 2025-2026 tax year)
The following example outlines the tax savings and additional disposable income available to a first-year intern.
| Details | No Package | Salary Package | Tax Savings |
| Salary | 80,000 | 80,000 | |
| Less: Amount Sacrificed | – | (9,000) | |
| Taxable Income | 80,000 | 71,000 | |
| Tax Payable | 16,388 | 13,508 | 2,880 |
| Net wages paid by hospital | 63,612 | 57, 492 | |
| ADD: Reimbursement of amount sacrificed | – | 9,000 | |
| Total | 63,612 | 66, 492 |
The $9,000 is used to purchase packaged items with pre-tax dollars. As a result, the tax savings amount to approximately $2,880 per year, which directly translates to increased disposable income.
Myth 2 – You can package at anytime!
Certain conditions must be met to ensure you are entering an effective salary packaging arrangement.
Essentially, salary packaging can only occur on the salary you will earn in the future, rather than the salary you have earned before establishing the salary packaging arrangements.
It is therefore in your interests to set it up as soon as you start working. The salary packaging year runs from 1 April through to 31 March. For established packages, it is a good idea to revisit your salary packaging arrangements each March to ensure that you are making the most of the opportunities. This is especially important as your salary increases, as your tax savings are likely to increase along with the tax level you pay.
Myth 3 – I’m not sure about Fringe Benefits Tax and don’t want to pay any additional taxes
Fringe Benefits Tax (FBT) is a specific area of tax law that is designed to tax benefits provided to employees. It is a tax the employer pays on the benefits provided to their employees, and often, employers will factor the cost of FBT into packaging arrangements. The good news is that, in most cases, hospitals and not-for-profits have exemptions from Fringe Benefits Tax that enable employees to enter into a salary packaging arrangement and still access benefits.
The important thing is to verify that your employer qualifies for the exemptions to ensure that the arrangement you are considering complies with the provisions of Fringe Benefits Tax exemptions. If not, the resulting additional cost to you will most certainly wipe out any expected tax savings.
Myth 4 – It doesn’t matter what I package
With such a wide range of benefits you can choose to package, you will need to explore what is most beneficial to you and your situation. Generally speaking, you should look to package benefits that are not tax-deductible; otherwise, you would claim them on your tax return and receive a tax benefit.
There are a large range of non-deductible benefits you can package and depending on the hospital you are employed by, you may even be able to package entertainment expenses such as your wedding reception! Common items packaged include credit card repayments and loan repayments.
It is very important to ensure you have effectively structured your salary packaging arrangement to suit your situation, or you may find it is not as tax-effective as it first appeared.
As this article is general in nature and all personal circumstances are different, you will need to seek advice that is tailored to your personal situation.
If you’d like help understanding how these myths might apply to you or your business, contact your local William Buck advisor.
