Salary packaging is an arrangement between an employer and an employee.

Under the arrangement, the employee agrees to forgo part of their future entitlement to salary in return for benefits of similar value which the employer provides.

As part of the salary packaging process, the employee then pays income tax on the reduced salary, whilst the employer may be liable to pay Fringe Benefits Tax (or FBT) on any non-cash benefits provided to the employee.

Although the fringe benefit received by the employee is generally not in the form of wages or salary, the employer is still liable for tax that may apply to these benefits. This is known as FBT.

The current FBT rate is 47% which is levied on the taxable value of fringe benefits provided to employees in the FBT year, 1 April to 31 March.

See ATO Link: Fringe benefits tax – rates and thresholds | Australian Taxation Office (

Fringe benefits can be split into three categories:

  1. fully taxable,
  2. concessionally taxed, and
  3. tax exempt (and excluded).

Most employees are generally only given the option to salary package fringe benefits which are concessionally taxed or tax exempt, so that employers circumvent an obligation to pay 47% tax on these fringe benefits.

Examples of such benefits include:

  • superannuation contributions (or salary sacrifice super contributions)
  • electronic devices (such as phones, laptops)
  • childcare
  • motor vehicles (under a novated lease arrangement)

NOTE – The Australian Taxation Office provides a detailed list on its website: Types of fringe benefits | Australian Taxation Office (

However, some employers such as Government-run public hospitals and not-for-profit (NFP) hospitals, are FBT exempt organisations. Thus, employees of such FBT exempt organisations i.e. Doctors, are afforded additional salary packaging benefits that include items that fall in the fully taxable benefit categories (in addition to the concessional and exempt/excluded categories).

“Capping thresholds” apply to organisations that are eligible for FBT exemption.


Capping Threshold – $17,000 per employee

Amount employee can package (on GST free benefits) – $9,010 (i.e. $17,000/1.8868)^

Amount employee can package (on GST benefits) – $8,172 (i.e. $17,000/2.0802)*

^lower gross up rate of 1.8868
*higher gross up rate of 2.0802

In general terms, benefits provided are free from FBT if the total grossed-up value of certain salary packaged benefits, provided during the FBT year are equal to, or less than, the capping threshold.

Therefore, eligible employees of these FBT exempt organisations, can meet the cost of these benefits on a before-tax basis by reducing their taxable salary, in exchange of the fringe benefit up to the capping threshold, and ultimately reduce the amount of personal income tax they are required to pay.

Employees, such as Doctors, of an FBT exempt organisation, such as public hospital, typically use their capping threshold to package fully taxable benefits such as;

  • rent
  • mortgage repayments
  • school fees
  • credit card repayments
  • general expenses such as groceries and fuel

These payments are GST free and therefore the higher packaging amount applies – $9,010.

In practice, for instance, for salary package mortgage repayments, the selected pre-tax amount is often paid directly to the mortgage loan account. And for salary packaged living costs, the selected pre-tax amount is often paid to a special employee ‘salary packaging’ debit card, such as an employer provided VISA debit card. The debit card is then used to purchase groceries, fuel etc.


It is important to note that voluntary superannuation contributions made by the employee to a complying superannuation fund are NOT considered fringe benefits, even though the employer may pay these contributions in pre-tax dollars on the employee’s behalf though the payroll system.

This means, that the capping thresholds operate in addition to the regular superannuation contribution limits that are available to employees.

For instance, where the employee is in a high marginal income tax bracket, the doctor could exhaust both their capping threshold and concessional contribution limit concurrently.


It is important to note that the full capping threshold applies even if the employer did not employ the employee for the full FBT year. Thus, capping thresholds are not applied on a pro-rata basis and are NOT contingent on the when in the FBT year the salary packaging commenced.

For example, if a Doctor, such as an intern, commenced work on 1 Jan with a public hospital, then subject to the hospitals approval, the Doctor may still be able to get the full annual benefit of salary packaging over the remaining 3 months of that FBT year.

Further, the capping thresholds apply separately to each employer, or in the case of public hospitals, to each area health service. Therefore, in a situation where a doctor is employed by a series of FBT exempt organisations (or different area health services) in the same FBT year, they may be able to benefit from multiple capping thresholds.


In addition to the capped thresholds, employees of FBT exempt organisations, can also salary package up to $5,000 (being the grossed-up value) for meal and entertainment benefits.

As these employers are generally not entitled to GST credits for these types of benefits, the lower gross up rate is deployed to calculate the amount that can effectively be salary packaged. Therefore, this amount would be $2,650 (i.e. $5,000/1.8868).

Importantly, meal and entertainment benefits that are salary package exceeding the $5,000 grossed-up value, will be applied to the $17,000 capping threshold.

EXAMPLE – DR SMITH (Doctor in training)

Dr Smith is a 2nd year registrar working in a large public hospital and has a capping threshold of $17,000.

His gross salary is $120,000 and he plans to package the maximum amount of living expenses and meal entertainment.

As the benefits are both GST free, Dr Smith can package:

  • living expenses of $9,010 ($17,000/1.8868)
  • meal entertainment of $2,650 ($5,000/1.8868)


Financial Year 2020-21 Non-Salary Packaging Salary Packaging
Gross Salary $120,000 $120,000
Less packaging living expense (0) ($9,010)
Less meal entertainment (0) ($2,650)
Taxable Income $120,000 $108,340
Tax Payable (incl. Medicare) $31,867 $27,846
Less after-tax expenses ($11,660) (0)
After Tax Income $76,473 $80,494
Net Benefit of Packaging $4,021
Reportable Fringe Benefits* $17,000 + $5,000 = $22,000


SEE Money Smart website;


A Reportable Fringe Benefit Amount (RFBA), as included in the above table, is reported on the employees Annual PAYG Summary, which is provided to the employee after 30 June of each year.

In general terms, an employee of a public hospital, will have RFB if the taxable value of packaged fringe benefits exceeds $2,000 in FBT year. In this case, employers are required to gross up the amount (using the rate of 1.8868) and report it on the payment summary of the employee. The RFB on a payment summary for a financial year is the grossed up taxable value of the RFB in the previous FBT year, which runs from 1 April to 31 March each year.


Income tax

The ATO does not include the RFBA when assessing an individual’s income and consequently, is not subject to income tax nor Medicare levy. Notwithstanding this however, there are several important implications that hospital employees should be aware of.

For instance, the RFBA is included in income tests for certain government benefits and obligations such as Medicare levy surcharge, low income super tax offset, private health insurance rebate, student loan repayments, division 293 tax, tax offsets, super co-contribution eligibility, family assistance payments and child support.

See ATO link;

Doctors undertaking salary packaging arrangements, should seek professional advice on the potential impact that RFBs can have in their situation.


Given that salary packaging is included in income tests and has the potential to impact several government benefits leading to unintended consequences, it is understandable that doctors would seek out potential strategies to reduce the RFBA.

Illustrated here are two commonly used strategies; *

  1. Packaging Fringe Benefits that are exempt from FBT.

Certain fringe benefits are considered ‘excluded’ and consequently are not required to be reported on an annual PAYG summary of public hospital employees.

Examples of these excluded benefits include:

  • car parking fringe
    · meal entertainment
    · the use of pooled or shared cars
    · remote area concessions
    · benefits provided to address a security risk to an employee
    · emergency or other essential health care you receive as an Australian citizen (for example, ambulances)
    · housing and relocation benefits provided to Defence Force personnel.
  1. Employee Contribution Method.

Under this method, the employee contributes towards the cost of a fringe benefit via a cash payment or after-tax contribution to either their employer or the organisation who provided the benefit. In this case, the taxable value of the fringe benefit is generally reduced by the amount of the contribution.

*professional advice should be sought to determine what strategies, if any, are suitable to the individual’s circumstances.


Doctors working in public hospitals and not-for-profit hospitals are afforded a unique opportunity to salary package benefits that allow them to meet the cost of regular living expenses on a before-tax basis. Doing so allows Doctors to reduce their personal income tax and increase their disposable cash flow.

Care should be taken when assembling salary packaging arrangements, as reportable fringe benefit amounts can have adverse impacts on other elements of a Doctors overall financial framework, including the ability to access various tax offsets and means tested payments, along with repayment obligations for student loans, to name a few.

Although this paper presents some of the advantages of salary packaging, Doctors should always seek professional advice to determine the most efficient salary packaging arrangement for their circumstances.

Cited from:

Australian Taxation Office (ATO) 2020, “FBT exemption”, 12 February, viewed 9 July 2020
FBT exemption | Australian Taxation Office ( 2020a,”

Reportable Fringe Benefits – facts for employees”, 1 April, viewed 9 July 2020
Reportable fringe benefits – facts for employees | Australian Taxation Office (

The Treasury 2018,” Review of Australian Charities and Not-for-profits Commission (ACNC) legislation”, February, viewed 9 July 2020
Review of Australian Charities and Not-for-profits Commission (ACNC) legislation |

NSW Health Professionals and Medical Salaries Awards 2019
he-profmed-salaries.pdf (

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