Salary packaging for hospital doctors: how it works
Most of this guide is about deductions, the costs you claim back on your return. This chapter is about something different, and for a doctor salaried at a public or not-for-profit hospital it can outweigh many of those deductions combined. Salary packaging lets you take part of your pay as benefits before tax is taken out, which lowers the income you are taxed on. It works because of who employs you: public and not-for-profit hospitals are exempt from a tax called fringe benefits tax, and that exemption is passed on to you. It is not a deduction you claim in July. It runs through your employer's payroll, all year.
How it works
You agree with your employer to receive part of your pay as benefits instead of cash. Your employer pays for those benefits from your pay before tax is worked out, so the income you are taxed on goes down. Because you were never taxed on that money, you cannot also claim a deduction for it. Salary packaging and a work deduction are two different things, and the same dollar cannot be both.
The cap
Because public and most not-for-profit hospitals are exempt from fringe benefits tax, you can package a set amount of everyday living costs each year free of that tax. The everyday-expenses cap is currently around $9,010 of your pay a year, which the ATO expresses as a grossed-up figure of $17,000 (the two numbers describe the same cap: one is the cash you package, the other its grossed-up value). On top of that sits a separate benefit for meal entertainment, currently capped at around $2,650. These figures are set by law and have held for years, but they can be changed, so treat them as current rather than fixed. What decides whether you can do this is your employer, not your title: a doctor at a public or not-for-profit hospital can usually access the exemption, while a doctor at a private, for-profit hospital usually cannot. If you are not sure which yours is, your payroll team or the packaging provider can tell you.
The catch, and why it matters especially for doctors
Salary packaging is not automatically the right move for everyone, and this is the part that catches people out. The amount you package still shows on your income statement as a reportable fringe benefits amount. You are not taxed on it, but it is added back when the government works out several income tests. That means it can raise your Medicare levy surcharge and, importantly for a doctor carrying a large HELP or HECS debt, increase your compulsory HELP repayments. It can also affect your private health rebate and income-tested family payments. For many doctors packaging still comes out ahead, but the gain can be smaller than it looks, so check it against your own situation, especially your HELP debt, before you start. Note too that the FBT year runs 1 April to 31 March, which is different from the income-tax year.
How you set it up
Salary packaging is run through a provider your employer nominates, not through your tax return. Your hospital will point you to its provider, and providers such as Maxxia, Smartsalary and RemServ are common in the sector. The provider charges an administration fee, usually taken from your pre-tax pay. You arrange it with them and payroll, and it runs automatically from there. There is nothing to claim at tax time for the packaged amount.
Novated leases and super, briefly
Two other pre-tax options are worth knowing exist. A novated lease is a way to package a car through your employer, and it is available more widely than the hospital exemption. Salary sacrificing into super is a separate arrangement that puts extra pay into your superannuation before tax. Both have their own rules and their own catches, and super in particular is a decision worth taking advice on, so this guide only flags that they exist.
The bottom line
For a doctor at a public or not-for-profit hospital, salary packaging is worth understanding properly. It lowers the pay you are taxed on, up to a yearly cap, through your employer rather than your return. Work out whether your employer qualifies, weigh how the reportable amount affects your HELP repayments and your other entitlements, and get the numbers checked for your own circumstances before you commit.
General information only, and not tax or financial advice. Salary packaging is an arrangement with your employer, not a deduction you claim at tax time, and whether it suits you depends on your circumstances, including how the reportable fringe benefits amount affects things like your Medicare levy surcharge and HELP repayments. Before acting, speak to your employer's nominated salary-packaging provider and a licensed financial adviser or registered tax agent. See the ATO or Moneysmart for the general rules.