© MEDIQ Financial Services - a Corporate Authorised Representative of MEDIQ Wealth Services Pty Ltd AFSL 529906 for Investment, SMSF and Risk Insurance Advice.
Liability limited by a scheme approved under Professional Standards Legislation
February 2nd, 2012
Medical professionals who derive any portion of income via the public system have the opportunity to save tax by salary packaging various items that would otherwise not be deductible for personal tax purposes. For many this would include mortgage payments, utility bills, entertainment expenses etc. This works well for both the employer and employee as usually these payments would attract Fringe Benefits Tax and be an added expense to the employer.
For Medical Professionals it is very important to be clear on the specific packaging limits and what those limits apply to. A couple of key maximum figures for the 12 month period are $9,095 (GST-exclusive items such as mortgage and life insurances) or $8,233 (GST-inclusive items such as utility bills, general insurances etc).
Beyond these amounts there are further deductions that can be packaged, common items include topping up your super from the 9% guaranteed amount to the relevant concessional cap, laptop computers and the meal/entertainment allowance. As these items do not attract FBT they have no upper limits.
Many MEDIQ clients derive only a small proportion of their income (say 1-2 days a week) via the public system with the balance of income derived via private billing. Taking full advantage of the packaging opportunities with their public income not only allows for great tax planning but means you can achieve the best outcome without the need to be allocating private billing income towards items such as superannuation etc. Instead, you salary package the entirety or the majority of your public income into superannuation. This not only maximises the tax saving of public income (which is normally subject to the highest marginal rate) but also preserves all the business income generated in your private practice for which there is more opportunity for creative tax-planning.
The packaging limits discussed apply to the annual Fringe Benefits Tax year, 1 April – 31 March, as such it is important to review how you are tracking towards these limits as the year unfolds. These highlight whether you are potentially missing any other opportunities to further reduce tax with some last minute packaged items, but also provide you with an important snapshot of how much super has been contributed for the year, another important running balance to keep an eye on. Your salary package provider will be able to produce a statement for the year to date.
Readily available opportunities for salary packaging might be further payments into the mortgage for those with debt, or upfront premiums on life insurance policies if these have not been reviewed for some time and require updating.
The opportunities to make the most of your salary packaging arrangements varies from employer to employer, and as such you will need to review your contract and discuss the options available with the relevant salary packaging provider. The likelihood is that you will have a range of options, however reviewing the options and deciding on which is the best course of action requires input from a specialist who understands your overall position and short term plans regarding wealth creation.
Like all aspects of your medical wealth strategy, planning ahead is critical, so a review of your salary packing arrangements will pick up on benefits available right now, but also will set you on the right track for next year and the year after that.