The simplest way to think salary packaging is that your hospital purchases goods and services for you instead of paying you an equivalent amount of money.

The primary purpose of salary packaging is to pay less tax. All the paperwork and complexity afterwards may seem like it has a purpose in and of itself, but always remember that paying less tax is the end goal.

How does Salary Packaging actually work?

Your employer purchases things for you in a very roundabout manner. First, money is deducted from your paycheque and redirected into a salary packaging provider account (e.g Maxxia, Austin Advantage etc.) This money is usually taken regularly on a fortnightly basis, aligned with your pay cycle.

When you provide tax invoices (receipts) for purchases that you have already made, the salary packaging provider pretends that they purchased those goods and services directly for you. Because the salary packaging provider is acting on behalf of your employer, effectively your employer has purchased these items for you.

The salary packaging provider then reimburses you the full value of the purchases/receipts directly into your bank account. This reflects that because you already paid for the purchases from your own funds, they have to reimburse you the full cost of those purchases. This reimbursement continues until you have used all the funds in your salary packaging provide account.

This excerpt of a salary packaging provider account shows money coming in after being deducted from your pay (1) followed by $55.60 in fees being removed (2) and then reimbursements for purchases (3). The reimbursements are directly to your bank account, and continue until the balance returns to zero (not shown).

Read more about what salary packaging means for your income tax return next.