How to Save on Tax: Salary Sacrifice for Doctors

How to Save on Tax: Salary Sacrifice for Doctors

Salary sacrifice aka salary packaging means you save on tax.  Employers pay for specified employee expenses (eg rent or mortgage) from TAX FREE pay.  It is generally advantageous to those earning over $45,000.  Salary packaging is particularly generous to health care workers, and even more so to public benevolent institution employees.

Savings vary depend on which health service you work for, fees charged by the salary packaging company and according to some special circumstances discussed below.  You should only salary sacrifice expenses you would have paid for anyway.

Many health care professionals are put off by the complexities, and as a result miss out on significant tax savings

Four Ways to Save on Tax

1. Superannuation

One important thing to check is that your employer won’t decrease their 9.5% payments in to your account as a result of salary sacrificing.  As long as this is not the case, you are likely to benefit from salary sacrificing into superannuation.

Another consideration is that the money you “Sacrifice” will be locked into your super potentially until your preservation age (60 years+).  You will probably never miss this small amount of money going from your pay check each cycle.  If you are forced to leave it, through the miracle of compound interest over 35 years or so, it will grow incredibly.

The first home super savers scheme allows eligible individuals who have made voluntary contributions to super withdraw up to $30,000 of those voluntary contributions for their first home deposit.

Those on higher incomes (fully qualified specialists) need to keep within the super caps – a total of $25000 (from July 2021 $27,500) can be contributed to super in total.  If you contribute more than this, you will get taxed at the top marginal rate anyway, and have fees added as well.

2. Sacrifice “Fringe Benefit Items”

Certain items can be sacrificed up to a value known as the “FBT Cap”. This is depending on your employer but often include:

  • Mortgage or rent payments
  • General living expenses
  • Childcare expenses
  • Credit card repayments
  • Health insurance premiums

Because you are theoretically being renumerated with services/goods instead of cash, the employer has to pay fringe benefits tax on these.  As a result,  employers put a limit on how much you can package under this category – Known as the “FBT Cap”.  For health services, this is generally around $9010.  This is a limit imposed by your employer, not the ATO, meaning that if you have more than one employer you can salary package up to the FBT cap with each employer!

You can salary package up to the FBT package with each employer if you have more than one job!  This could be very handy for those with large mortgages

Sally is an intern hoping to pay her rent from tax free money with a gross income of $70000?

In the table below I have calculated the difference in tax paid by Sally when the $9000 FBT allowance is packaged.  Fees have not been included, as each health service uses a different salary packaging company.

No Salary Sacrifice $9000 FBT Cap packaged NSW $9000 FBT cap packaged
Gross Pay $70,000 $70,000 $70,000
Tax paid $14,297 $11,372 $11,372
Benefit 0 $2,925 $1,462.50

The benefit in NSW is not as generous, as NSW health “Shares” the tax benefit 50% with the employee.

Of course, it’s not that simple.  Sally’s total reportable taxable income increases from $70,000 to a “Grossed up” amount of $78000 (Including tax saved at highest tax rate).  This higher income is used to assess:

  • Medicare levy surcharge (1-1.5% of your income after you start earning $90000, unless you pay for private health insurance instead)
  • Super co-contribution – Maximum benefit of $500 if you earn less than $53564 in 2019-20
  • Private health insurance rebate
  • Required student loan repayments
  • Child support obligations
  • Your entitlement to certain income-tested government benefits.

The medicare levy surcharge is not relevant to Sally, as her grossed up income is still under the $90000 MLS threshold. Yay!

Sally would have to pay an extra $1140 HECS repayments if she chooses to salary sacrifice but will still end up with $1785 cash in their pocket.

If Sally was working for NSW health, she will only have an extra $322.50 in your pocket (excluding fees).

Remember, the extra $1140 in HECS payments isn’t really lost – it’s paying down Sally’s debt instead of going to the tax man.

Lets look at another case

Tom is PGY 3 hoping to pay his mortgage from tax free pay.  He earns $83000 per annum

In the table below I have calculated the difference in tax paid by Sally when the $9000 FBT allowance is packaged.  Fees have not been included, as each health service uses a different salary packaging company.

No salary Packaging $9000 FBT Cap sacrificed $9000 FBT cap sacrificed in NSW
Gross pay $83,000 $83,000 $83,000.00
Tax paid $17,872 $20,797 $20,797.00
Benefit $0 $2,925 $1,462.50
“Grossed up Pay” $83,000 $91,000 $91,000.00


Medicare Levy Surcharge

Looks good, but Tom is close to the Medicare levy surcharge threshold ($90,000) and the salary packaging pushes his “Grossed up” pay over.

He will have to pay $910 extra towards a medicare levy surcharge, which reduces his overall benefit to $2015 per annum, or just $552.50 if he is working in NSW health.

If Tom has private health insurance hospital cover, he will not have to pay the MLS, and benefits will return to the original table.

Tom will have to pay MLS if his wage increases to over $90,000 next year, so it’s time to start considering private health insurance.

Student Loan Debt

Tom is still paying off his student loan (there’s no hurry!) but salary packaging will mean he will have to make additional HECS repayments – $1350 per year above his usual payments.  This money goes to paying off debt rather than being lost to tax, so I don’t consider it lost.  But it will mean that Tom’s net pay packet will now be only $665 larger by salary packaging.  If Tom works for NSW, he will be paid $797.50 LESS net pay by salary packaging, but is still better off when debt pay off is considered.

As you can see, if your employer has a “Benefit sharing” scheme, or make the employer pay the fringe benefits tax themselves, it becomes borderline whether there is a benefit to the employee.  For most employers that allow the employee to enjoy their tax savings benefits there is clear cut benefit even despite extra HECS repayments.

If Tom or Sally have child support payments, it will be even more complex. Personal professional advice is recommended.

Benefits of salary packaging increase as your wage increases, with a potential benefit of $4050 per year to a specialist earning $200000 who has private health insurance, has paid off student loans and hasn’t gained child support payments

3. Salary package other Items Unlimited by a FBT Cap

Again, benefits are depending on your employer, but include:

    • Entertainment Cards

Alas not all employers offer this (but NSW health does!)  Up to $2650 can be spent, usually on meals out and entertainment venues tax free!

    • Otherwise Tax Deductible Items

Professional fees, a stethoscope, specific branded work clothes (eg scrubs), laptops or mobile phones used more than 51% for work can be packaged. These are all tax deductible anyway, so salary sacrifice just means you get that tax benefit spread through the year rather than after you do your tax return.  Never seemed worth the effort to me.

However, equipment (including laptops and mobile phones) brought for more than $300 cannot be immediately tax deducted in the same year, but undergo a depreciation schedule. This means you get the tax back spread out over three years for laptops or mobiles – annoying.  This might be worth the effort of filling in a form – through salary sacrifice you will reap the tax benefit back spread over the first year instead.

4. A Tax Free Car and Car Running Costs?

Sounds too good to be true, and it maybe is.  This is a complex arrangement between yourself, a car company that is “leased” by you for a predetermined period of time.  At the end of the lease, you give the car back or pay the book price the car leasing company have listed.

Lots of doctors have regretted entering into these arrangements, the complexities can make it really difficult to work out whether there is a real benefit or not.  The tax savings are often eaten up by excessive interest rates and charges from the car leasing company.

At least a second hand car is now an option through leasing, which may make the strategy more financially sensible

A detailed assessment and independent financial advice is necessary to know whether the benefits go to the employee or car leasing company.  Buyer beware!

Detailed assessment to follow!


  • Salary sacrificing into super is as close to a no brainer as you can get.  Sign up now if:
    • Your employer will still contribute at least 9.5%
    • You earn more than $45000 and less than $289,000
  • Salary packaging ~$9000 “FBT cap items” (usually mortgage or rent) will result in money saved on tax and you will pay any student loan debt off faster.
    • You will end up with more money in your pocket UNLESS you work for an employer that “Shares the tax benefit” eg NSW and are earning between $80,000 to $90,000 and don’t have health insurance, or multiple student debts.
  • An entertainment card means you can pay for meals out and venue hire from tax free money, but is not offered by all employers.
  • You will save money as long as you don’t package more than you would have spent anyway.
  • Other Non-FBT items are those that are tax deductible anyway- you may want to salary package your laptop or mobile phone to get the tax back in 1 year rather than spread over 3
  • Novated Lease – Buyer beware! Get a professional to assess whether you will really get any benefit

For more information check out making doctors’ income more efficient and the ATO website.

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2 thoughts on “How to Save on Tax: Salary Sacrifice for Doctors

  1. I’m wondering about the part in the columns regarding the grossed up pay? Salary packaged money isn’t extra money, it’s money that’s separated out tax wise from your income.
    So taking the 70K gross income example, what actually happens is that the person that salary packages 9K actually has an income of 61K which is taxed, plus 9K which is received untaxed. So how do you arrive at the grossed up value of 78K?
    I haven’t been able to salary package anything for nearly 5 years now anyway so I might not have the details quite right.

    • Hi ChasingFiredownunder.

      Thanks for your comment! I put off salary sacrificing for years because it seemed so complex! My ambitious aim was to try and make it seem simpler, so others would feel less overwhelmed. It’s not really free money – as you say, just money separated from gross pay before taxation and then paid tax free. But the net resulting extra money that would have otherwise been paid in tax instead helps pay my mortgage down – Feels like free money to me!

      With the “grossed up” issue – I think this is only really important for those with student loans, Medicare Levy surcharge or child care subsidy (which include fringe benefits in assessable income). So you may end up paying more in student loan repayments or MLS and recieve less child care subsidy if you salary sacrifice. Definitely worth a chat with your accountant or financial planner if you’re in this situation.

      As per the ATO article here “Grossing up reflects the gross salary that you would have to earn to purchase the benefit from after-tax dollars. For payment summary and income statement reporting purposes, this is calculated as multiplying the taxable value of the benefit by the lower gross-up rate. The lower gross-up rate is 1.8868 for the year ended 31 March 2020”. So I’ve calculated 9000 x 1.8868 + 61000 = ~78K

      Hope that makes sense and my calcs are correct!

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