How salary sacrifice affects your take-home pay: understanding the difference between gross salary and package
Your take-home pay depends on whether you salary sacrifice; the ATO example shows that with a $65,000 salary and a car benefit, net disposable income can vary from $41,912 to $43,593 depending on employee contributions.
What is salary sacrifice?
Salary sacrifice – also known as salary packaging or total remuneration packaging – is an arrangement where you and your employer agree that you will receive less before-tax salary in return for certain benefits of similar value. The Australian Taxation Office explains that this reduces your taxable income, so you may pay less income tax. There is no restriction on the types of benefits you can include, as long as they form part of your remuneration. Common examples include cars, computers, childcare costs, and super contributions.
To have an effective salary sacrifice arrangement, you must enter into it before you perform the work, have a clear agreement with your employer, and have no access to the sacrificed salary. Expenses paid via direct debit from your pay are not salary sacrificed. If the arrangement does not meet these requirements, you may be taxed on the benefits as assessable income.
How salary sacrifice affects your take-home pay
Your take-home pay is the amount that reaches your bank account after income tax and the Medicare levy. Salary sacrifice changes this because it lowers your taxable income. However, the benefit you receive (such as a car) is not cash – it reduces the cash you have available to spend on other things. The ATO illustrates this with an example for Sam in 2025–26, using a $65,000 annual salary and a car benefit.
- Scenario 1 (no packaging): Taxable income $65,000, income tax $10,288, Medicare $1,300, car expenses $11,500. Net disposable income: $41,912.
- Scenario 2 (car without employee contributions): Salary sacrifice $17,353, taxable income $47,647, income tax $5,082, Medicare $953. No car expenses (employer pays). Net disposable income: $41,612.
- Scenario 3 (car with employee contributions of $7,000): Salary sacrifice $4,145, taxable income $60,855, income tax $9,045, Medicare $1,217, employee contribution $7,000. Net disposable income: $43,593.
This shows that salary sacrifice can either slightly reduce or increase your net disposable income, depending on whether you make employee contributions to lower your employer's FBT. The key is to compare your total after-tax cash position, not just the tax saved.
Salary sacrifice and super
Putting some of your pre-tax income into super is a common form of salary sacrifice. Your super fund taxes these contributions at 15% (the same as employer contributions). They count toward the concessional contribution cap of $32,500 per year (2026–27), which includes your employer's super guarantee. Importantly, your employer must still pay the full super guarantee on your original salary – salary sacrifice cannot replace that obligation. The Moneysmart website notes that salary sacrifice into super can be tax-effective, but you need to stay within the cap to avoid extra tax.
Key considerations
Fringe benefits tax
Most salary-sacrificed benefits are fringe benefits, and your employer must pay FBT on their taxable value. The FBT rate is set at the highest marginal tax rate plus Medicare levy, so employers may limit what they offer. You can make an employee contribution (from after-tax income) to reduce the FBT your employer pays. From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT.
Medicare levy and other impacts
Because salary sacrifice reduces your taxable income, it can lower your Medicare levy (2% of taxable income). If your income falls below the single-person thresholds ($28,011 and $35,013), you may pay a reduced levy or none. However, salary sacrifice may also affect the Medicare levy surcharge, study and training loan repayments, child support, and some government benefits. The ATO warns that reportable fringe benefits appear on your income statement and can affect these calculations.
Example from the ATO
The ATO's example with Sam shows that salary sacrifice is not a simple win. Your net disposable income depends on the type of benefit, whether you make employee contributions, and your personal circumstances. Always consider the total picture, including any costs you would otherwise pay yourself.
For more on how your salary is structured, see our guides on Take-home pay and Salary packaging. You can also use the Clearance tool to estimate your after-tax income without salary sacrifice.
Questions
What is salary sacrifice?
Salary sacrifice (also called salary packaging or total remuneration packaging) is an agreement between you and your employer to receive less before-tax salary in exchange for certain benefits of similar value. This reduces your taxable income, so you may pay less income tax. The Australian Taxation Office explains that there is no restriction on the types of benefits you can include, as long as they form part of your remuneration. However, many benefits are fringe benefits, and your employer may have to pay fringe benefits tax (FBT) on them. You must enter the arrangement before you perform the work, and you cannot access the sacrificed salary.
Does salary sacrifice affect my super?
Yes, but in a specific way. Salary sacrificed super contributions are treated as employer contributions and are not fringe benefits if paid to a complying super fund. They are additional to your super guarantee entitlements – your employer must still pay the full super guarantee (currently 12% from 1 July 2026) on your original salary, as if there were no sacrifice. These contributions count toward your concessional contribution cap ($32,500 for 2026–27). You cannot claim a tax deduction for expenses your employer pays for as part of your package.
How does salary sacrifice affect my Medicare levy?
Because salary sacrifice reduces your taxable income, it can lower the Medicare levy you pay (2% of taxable income for most people). If your reduced taxable income falls below the single-person Medicare levy thresholds ($28,011 and $35,013), you may pay a reduced levy or none at all. However, salary sacrifice may also affect the Medicare levy surcharge if you have private hospital cover. The ATO warns that salary sacrifice can impact other areas such as study loan repayments, child support, and some government benefits.