How Much Can I Salary Sacrifice? A Guide to Boosting Your Take-Home Pay

What Is Salary Sacrifice and Why Does It Matter?

When you see a job ad that says “$85,000 plus super”, that figure is your gross salary. But what actually lands in your bank account each fortnight is your take-home pay after income tax and the Medicare levy. If you’re wondering how much can I salary sacrifice, you’re already thinking about a strategy that can shrink your tax bill and boost your disposable income.

Salary sacrifice (also called salary packaging) is an agreement with your employer to swap part of your pre-tax salary for benefits of equal value. The Australian Taxation Office explains that this reduces your taxable income, meaning you pay less income tax and Medicare levy. The benefits can include cars, laptops, super contributions, or even school fees – there is no restriction on the types of benefits you can include.

How Salary Sacrifice Changes Your Take-Home Pay

Let’s look at a simple example using the 2026–27 tax rates published by the ATO. For a resident earning $65,000 a year:

• Without salary sacrifice: taxable income $65,000. Tax on this income (using the 2026–27 rates) is $4,020 plus 30c for each dollar over $45,000, which equals $4,020 + $6,000 = $10,020. Add 2% Medicare levy ($1,300) gives total deductions of $11,320. Take-home pay: $53,680.
• With a salary sacrifice of $17,353 for a car (as in the ATO’s example): taxable income drops to $47,647. Tax is $4,020 plus 30c on $2,647 = $4,020 + $794 = $4,814. Medicare levy is $953. Total deductions $5,767. Take-home pay after salary sacrifice amount: $41,612. But you also have the car benefit worth $17,353, so your net disposable income (take-home plus benefit) is $58,965 – higher than the $53,680 without packaging.

Of course, the exact numbers depend on your salary, the benefit, and any employee contributions you make. The key takeaway: salary sacrifice can increase your overall wealth even though your cash take-home is lower.

The Mix-Up: Gross Salary vs Package vs Take-Home

Many people confuse these three terms:

• Gross salary is the figure in your employment contract before any deductions.
• Package includes your gross salary plus any salary sacrifice benefits and employer super contributions.
• Take-home pay is what you actually receive after tax, Medicare, and any salary sacrifice amounts are deducted.

When you salary sacrifice, your take-home pay drops, but you receive a non-cash benefit. The ATO’s example shows that with employee contributions, your net disposable income can actually be higher than without packaging.

How Much Can You Actually Sacrifice?

The short answer: it depends on your employer’s policy and the type of benefit. The ATO states there is no restriction on the types of benefits, but your employer must agree to the arrangement. For fringe benefits like cars, your employer may ask you to make an employee contribution to reduce the fringe benefits tax (FBT) they have to pay.

For super contributions, salary sacrificed amounts are treated as employer contributions and count towards the concessional cap ($30,000 for 2026–27). Your employer must still pay the super guarantee on your original salary, so your total super can grow faster.

Impact on Medicare Levy and Tax Offsets

The Medicare levy is 2% of your taxable income for most people. If your taxable income after salary sacrifice falls below the single lower threshold of $28,011, you may pay a reduced levy or none. The latest published thresholds are $28,011 and $35,013 – full-time salaries typically pay the full 2%.

You may also be eligible for the Low Income Tax Offset (LITO), which can reduce your tax to zero if your taxable income is low enough. The maximum LITO is $700 for incomes up to $37,500, then phases out.

What to Watch Out For

Salary sacrifice can affect other areas:

• Medicare levy surcharge if you don’t have private health insurance and your income is above the threshold.
• HELP/HECS repayments – your compulsory repayment is based on your taxable income, so salary sacrifice can reduce it.
• Government benefits like Family Tax Benefit may be affected because your reportable fringe benefits are included in your income test.

Always check with your employer or a tax professional before setting up an arrangement.

How to Get Started

To set up a salary sacrifice arrangement, you need a written agreement with your employer before you earn the income. You cannot sacrifice salary or wages you have already earned. The ATO says you must have no access to the sacrificed amount – if you don’t use the benefit, it becomes salary and is taxed normally.

Use the Salary packaging guide on this site to see common scenarios, and check the Tax and Medicare page for the latest rates.