Teacher salary packaging: what you can package, and what it's really worth

Salary packaging in one paragraph

Salary packaging (also called salary sacrifice) means agreeing with your employer to take part of your pay as benefits instead of cash, before tax is worked out. You pay less income tax because your taxable salary falls. But the employer may have to pay fringe benefits tax (FBT) on what it provides, at 47%, and it usually passes that cost back to you. So packaging only saves money where the benefit is FBT-free, or where the employer gets an FBT concession.

That's why the type of employer matters so much. Hospitals and some charities that are public benevolent institutions (PBIs) get a full FBT exemption up to a cap. Most non-government schools get a rebate instead, which is worth less. Government education departments get neither.

Government school teachers: what's on offer

State education departments aren't PBIs or rebatable employers, so there's no FBT-free cap for everyday expenses like rent, mortgage repayments or bills. What you can package is limited to benefits that are tax-effective for any employer.

Catholic and independent schools: the 47% FBT rebate

Non-profit Catholic and independent schools are generally FBT-rebatable employers. They aren't usually PBIs, so the $30,000 grossed-up exemption cap (worth about $15,900 of benefits) that PBIs use doesn't apply. Instead, the school gets a 47% rebate of the FBT it would otherwise pay, on benefits up to $30,000 grossed-up per employee per FBT year (1 April to 31 March).

Whether your school is rebatable depends on its own ACNC registration and ATO endorsement, so 'usually' is the honest word. Your payroll or packaging provider can confirm.

The real maths: why the rebate is less generous than it sounds

Here is how a living-expense benefit, such as mortgage or rent payments, works at a rebatable school, if the school passes the full FBT cost back to you. For a benefit with no GST credit, the grossed-up value is 1.8868 times the benefit. FBT is 47% of that, and the rebate removes 47% of the FBT. The FBT left over works out at about 47 cents for each $1 of benefit.

The lesson isn't that packaging at a Catholic or independent school is never worth it. It's that the saving depends heavily on your marginal rate, how your school treats FBT, admin fees and your HELP status. Higher earners on the 37% bracket benefit most. For most classroom teachers on 32%, the main value tends to come from meal entertainment, venue hire, super and FBT-exempt items.

Meal entertainment and venue hire

Rebatable and exempt employers can offer salary-packaged meal entertainment (dining out, often via a card) and entertainment facility leasing (such as venue hire for a wedding or party). These have their own cap of $5,000 grossed-up each FBT year, on top of the $30,000 cap, which works out to about $2,650 of spending.

• Only meals that count as 'entertainment' qualify: dining at restaurants or cafés, not groceries or takeaway for home.
• Keep receipts. Providers often require them, and the card can be cancelled for misuse.
• These benefits are reportable, so they're added to your HELP repayment income and Medicare levy surcharge income.
• The FBT result depends on how your employer values meal entertainment. Ask what it costs you per $1 spent.

Novated leases for teachers

A novated lease is a three-way agreement between you, your employer and a finance company. Your employer pays the lease and running costs from your pre-tax salary, and the car is yours to use. Any teacher can use one, government or not.

Get at least two quotes and compare the total cost over the lease term, including the residual, with buying outright or with a car loan. Packaging providers earn fees on leases, so their comparisons aren't neutral.

Before you sign: checklist

Super: the packaging option every teacher has

Salary sacrificing into super is available in every sector and doesn't attract FBT. It's taxed at 15% in the fund instead of your marginal rate, so a teacher on the 30% bracket saves 17c per dollar (32% less 15%). The catch is that you can't touch the money until you meet a condition of release, it counts toward the $32,500 concessional cap along with your employer's contributions, and it doesn't reduce HELP. See salary sacrifice super for teachers.