Salary Packaging for Junior Doctors

Salary Packaging
for Junior doctors

17th february 2021

Fact #1: Doctors are great at saving lives

Fact #2: Doctors are s*** at managing their own finances

This article contains some advice that I had wished someone had told me when I was a final year medical student/intern. I could have saved a lot more money with no extra effort involved. I hope you find it useful.

As a newly minted junior doctor, you are probably spending your first few weeks fretting on how to write a discharge summary or print a script. Whilst these may seem like important tasks now, they are unlikely to have much impact on your future as a doctor.

One thing that will have a large impact on your future is the financial groundwork you set up in your first few years in the profession. Financial management as a doctor is never discussed in medical school. For many junior doctors, being an intern is their first ‘real job’ in the big wide world. There’s a lot to process and not much preparation time. Salary packaging is a great way to earn more money, without having to pick up any extra shifts.

Salary Packaging. What is it?

Salary Packaging is a unique tax saving that’s afforded to only a few specific professions. If you happen to be a doctor that works in Australia’s public hospital system, you have hit the jackpot. Salary packaging involves ‘packaging’ or setting aside, a portion of your income towards certain expenses. This reduces your taxable income and means you essentially pay LESS tax. More on this later.

How does it work?

As you will learn when you start working – it’s all about TAX! The Government loves to dip into your fortnightly pay check and take a chunk of cash to help keep the country running. The altruistic few amongst you will willingly part with your hard earned cash for the betterment of humanity. The vast majority of you will clutch your precious income to your chest and frantically hunt for ways to reduce your bill to the Tax man. Salary packaging involves apportioning some of your expenses on certain items to avoid paying tax on those things. It is a BENEFIT that is offered by your employer. You submit evidence of these purchases (receipts etc.) to your salary packaging provider who then contacts your payroll administrator. Then, payroll sets aside this ‘packaged amount’ and then deducts tax from your salary. They add the ‘package’ back on before it gets to your bank account (or a few days later).

The Cookie Analogy

Think of your salary like a cookie (because who doesn’t love cookies). Now think of the Tax man like the Cookie Monster (because he loves cookies and he doesn’t want to leave any for you). There are two scenarios that can ensue when the Cookie Monster sees your Cookie. Let’s use a flat 30% tax rate for all the examples in this article. Makes life easier.

Option 1: You DON’T Salary Package

In this case, the Cookie Monster is gonna take a 30% chunk of your cookie. You’re gonna get the remaining 70% to go and live the rest of your life. This includes pay bills, food, the rent/mortgage with the remaining 70%.

Option 2: You DO Salary Package

Let’s assume you’ve signed up with a salary packaging provider and have found some expenses you are willing to “sacrifice”. Your employer will send you a cookie (aka paycheck) every fortnight. Before the Cookie Monster (aka the Tax Man) can get his hands on your cookie, the salary packaging company will remove a certain chunk of the cookie that you have claimed for. They’ll keep this in a sterile bag for later. This makes your Cookie smaller. This also means the Cookie Monster is taking a 30% bite out of a much SMALLER cookie. Once the Cookie Monster has feasted on 30% of your SMALLER cookie, the salary packaging company will return the original chunk that they removed (aka the sterile bag). This gets added back to your cookie. Essentially, you don’t have to pay tax on the chunk of cookie that you “sacrificed” earlier.

Let’s Crunch the Numbers!

Let’s look at an example: Assume you have just met two interns. Intern A and Intern B. Both have started the year on general surgery (yay!). Both earn a gross (before tax) salary of $3000. Both work the same hours and roster. Intern A has hasn’t had time to set up their salary packaging. Intern B signed up in their first week. Intern B is able to salary package $350 every fortnight. Assuming a 30% income tax rate, let’s see how much both intern’s make at the end of their first fortnight of work.

	Intern A (WITHOUT Salary Packaging)	Intern B (WITH Salary Packaging)
Gross Salary	$3000	$3000
Taxable Income	$3000	$3000 - $350 = $2650
Income Tax (assume 30%)	$900	$795
Take Home Pay Calculation	$3000 - $900	$2650 - $795 + $350
FINAL Take Home Pay	$2100	$2205

Intern B has earned $105 more than Intern A. Both have done the same amount of work, clocked the same number of hours and have the same salary. But Intern B pockets the extra cash. Which intern would you rather be?

Why you should be Salary Packaging?

Hopefully, I’ve convinced you to salary package via the Cookie Analogy and worked example above. Salary Packaging allows you to reduced our tax bill and keep more of the Cookie to yourself. Who doesn’t want more cookies… Bottom line. You pay LESS tax and take home MORE money. Enough said.

Who should I Salary Package with?

If you are fresh out of medical school, chances are there will be different salary packaging companies vying for your attention. You would have seen them at Intern Orientation Workshops or during O-week.

Every Hospital and health service has their own salary packaging providers. There’s only a finite number of options in most cases. Most of the time, they offer very similar (if not the same) things. In order to differentiate, I look out for the following things:

Administration fees: Each salary packaging company will charge a monthly/annual fee for managing your salary packaging. It often pays to investigate how much they charge and how frequently they charge. This can often make the difference between
Ease of use: Some companies have started using apps to upload claims and track expenses. Other companies still rely on the use of paper forms and faxing and scan and blah blah blah. Choose what works best for you and what fits easiest into your administrative workflow. With any customer service, I would recommend calling the actual companies up and talking to their customer service operators. These are the people you will be dealing with if anything goes wrong so its a good idea to get a feel of how they treat you on the phone.
Salary packaging options: What do they let you salary package and are there any discrepencies between other providers.

What can you Salary Package?

Different salary packaging companies allow you to salary sacrifice different things. Each company/organisation will have a list of items that you are available for salary sacrificing. Common examples include rent, utilities, motor vehicle expenses and car parking. It is best to talk directly to your salary packing company to determine what can and cannot be packaged.

How Much Can I Salary Package?

Wouldn’t it be great if we could salary package until the cows come home!

But alas, that would be too good to be true.

There are limits on how much you can salary package within a certain time frame. The maximum amount of money is referred to as a CAP. This is usually in the ballpark of $9000 but depends on which state you work in. Some states and health services offer additional caps for certain expenses (accommodation and meals). Check with your nearest provider.

The time frame is referred to as the Fringe Benefit Tax (FBT) Year. The FBT Year runs from April 1st to May 31st. Essentially, you can use your cap within this time frame. The cap renews every 12 months according to the FBT year.

My #1 Piece of Advice

In Australia, the Medical intern year begins in January. So you essentially come in towards the tail end of the FBT year. The great thing about this is that you have your entire cap (i.e. $9000) to use in 3 months, instead of the usual 12 months. This is a great opportunity to plan ahead and make any big purchases that you envisage being useful for the rest of the year. You will essentially be buying them tax free! Conversely, if you are about to leave an organisation that offers salary packaging and begin at a new organisation that does not offer salary packaging, you can use the remainder of your cap to maximise your tax free purchases. For example, if you finish your salary packaged job at the end of December and start your non-salary packaged job in January, you can contact your SP company and ask them to pay out the remainder of your cap across the last few weeks of your job. Ideally, it is best to do this a few months in advance of actually leaving the original position.

Well folks, that’s a wrap on this article. Hope it was useful!

Do more with your money,

Doctor Nisha

DISCLAIMER: The words written above do not constitute financial advice. I am not a financial advisor and do not have professional qualifications or experience in this field. Please seek professional counsel before making any financial decisions.