Salary packaging – things to consider before you do

In the previous article, we looked briefly at what salary packaging is and how it works.  But how do you decide if it’s for you?  We’re all different with unique individual circumstances, so there’s no ‘one size fits all’ answer.  Here are some things to think about to help you decide whether it could work for you.

How do I know if it’s for me?

There’s not a lot that could go wrong when you salary package exempt items or superannuation. However, packaging fringe benefits can be complicated and it won’t suit everyone. The most common fringe benefit ADF members package is a car, so here are some considerations to think about before going down this route:

• Overspend – it might be tempting to buy a large expensive vehicle when you really just need something to get you from point A to point B.
• Financial commitment – you will be making a considerable financial commitment for the period of the lease, which may impact your ability to meet other expenses.
• Interest rate – you may be able to negotiate a better interest rate with another lender.
• Upfront discount – you may be able to negotiate a larger up-front discount if you approach car dealers yourself.
• Balloon payment – novated leases have a large residual payment due at the end of the lease period. How will you fund this payment? If you need to sell the car and start again, are you setting yourself up to be on a continuous debt cycle?
• Admin fees – you should understand the fees charged by the service provider for administration of the salary packaging arrangement.
• Effect on other government benefits – how will this arrangement effect things like income support payments, family tax benefits or child support?

Gathering this information may take some time. To do it properly you’ll need to visit some car dealers and see what sort of price you can negotiate, research the effect on government benefits, and research interest rates. If you have a mortgage with a redraw or offset account, could you fund it yourself?

Salary packaging can be effective for some people, but it pays to think it through thoroughly. Don’t guess at costs or benefits, take the time to gather accurate information and cost it out properly. The Moneysmart cars app may be useful in working out the real cost of buying a car privately, or you could use a spreadsheet or simply write it all out using pen and paper.

It’s great to have options but you need to make sure the numbers stack up for you.