How to Choose the Best Salary Sacrifice for Your Take-Home Pay

What Is Salary Sacrifice and How Does It Work?

Salary sacrifice (also called salary packaging or total remuneration packaging) is an agreement between you and your employer where you forgo part of your pre-tax salary in exchange for a benefit of similar value. The Australian Taxation Office explains that this arrangement reduces your taxable income, meaning you pay less income tax and a lower Medicare levy.

For example, if your annual remuneration is $65,000 and you sacrifice $17,353 for a car, your taxable income drops to $47,647. Using the 2026–27 tax rates from Moneysmart, your income tax falls from $10,288 to $5,082, and your Medicare levy from $1,300 to $953. After accounting for the car expenses you no longer pay directly, your net disposable income can actually increase.

The Best Salary Sacrifice Strategy for Your Situation

The best salary sacrifice arrangement depends on your goals. If you want to boost your super, sacrificing salary into your super fund is a popular choice because those contributions are not subject to fringe benefits tax (FBT) and are treated as employer contributions. They also reduce your taxable income dollar for dollar. However, you must enter the arrangement before you perform the work, have a written agreement, and not have access to the sacrificed salary.

For work-related items such as laptops or tools, note that from 1 April 2027 these will no longer be exempt from FBT when provided through salary sacrifice. So if you are considering that option, act before the change or factor in the FBT cost.

How Salary Sacrifice Affects Your Take-Home Pay

Your take-home pay is what lands in your bank account after income tax and the Medicare levy are deducted. Salary sacrifice lowers your taxable income, so both deductions shrink. But you also lose access to the sacrificed cash – it goes to the benefit provider instead.

Consider the national minimum wage of $26.44 per hour ($1,004.90 per week, $52,255 per year) from Fair Work. If you earn that amount and sacrifice a portion into super, your taxable income might fall below the tax-free threshold of $18,200, meaning you pay no income tax and no Medicare levy. That would maximise your take-home pay from the remaining salary.

On the other hand, if you earn the full-time adult ordinary time earnings of $2,083.70 per week ($108,352 per year) from the ABS, sacrificing into super could save you thousands in tax at the 30% marginal rate (plus 2% Medicare levy). The table on the ATO site shows a similar scenario where an employee contribution of $7,000 for a car actually increases net disposable income compared to not packaging.

Key Considerations Before You Start

• Medicare levy thresholds: The latest single-person thresholds are $28,011 and $35,013. If your taxable income after sacrifice falls below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, you pay 10 cents per dollar over the lower threshold.
• Super guarantee: Your employer must still pay the 12% super guarantee on your ordinary time earnings, even if you sacrifice salary into super. The sacrificed contributions are on top of that.
• Government benefits: Salary sacrifice can affect child support, some tax offsets, and study loan repayments. Check with a professional if you receive family assistance.
• Reportable fringe benefits: Some benefits are reported on your income statement and may affect the Medicare levy surcharge or your eligibility for certain offsets.

Putting It All Together

To find the best salary sacrifice for you, start with your current salary and compare scenarios using the ATO’s example or Moneysmart’s income tax calculator. Remember that you cannot claim a tax deduction for an expense your employer pays as part of the package. Always ensure the arrangement is effective – entered before you perform the work, with no access to the sacrificed amount.

For more guidance, see our Salary packaging guide and Tax and Medicare page. If you are comparing job offers, our Take-home pay calculator can help you see the net effect of different salary sacrifice options.