What Can You Salary Sacrifice? A Guide to Boosting Your After-Tax Pay

What Can You Salary Sacrifice? Understanding Your After-Tax Pay

Salary sacrifice—also called salary packaging—is a way to swap part of your pre-tax salary for benefits like a car, extra super, or a laptop. The key question is: what can you salary sacrifice, and how does it affect the amount that lands in your bank account after tax and the Medicare levy?

How Salary Sacrifice Works

When you enter a salary sacrifice arrangement, you and your employer agree that you will receive less cash salary in exchange for a benefit of similar value. The Australian Taxation Office explains that this reduces your taxable income, meaning you may pay less tax on your earnings. The benefit replaces what you would otherwise receive as salary, so you cannot access the sacrificed amount later. You must set up the arrangement before you perform the work, and you cannot sacrifice salary or wages you have already earned.

What Benefits Can You Sacrifice?

There is no legal restriction on the types of benefits you can include, as long as your employer offers them. Common examples include:

• A car (including running costs)
• Superannuation contributions (additional to the 12% super guarantee from 1 July 2026)
• Electronic devices like laptops and phones
• Childcare fees
• Gym memberships (in some cases)

From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from fringe benefits tax (FBT) and will be subject to FBT. Check with your employer about what they offer.

Impact on Your Take-Home Pay

To see how salary sacrifice changes your after-tax income, consider an example from the ATO. An employee earning $65,000 per year (2025–26 rates) who sacrifices $17,353 for a car reduces their taxable income to $47,647. After income tax ($5,082.10) and Medicare levy ($952.94), their net disposable income is $41,611.96. Without salary sacrifice, the same employee would have $41,912.00 after paying tax, Medicare, and car expenses out of pocket. However, if the employee makes an after-tax contribution of $7,000 towards the car, their net disposable income rises to $43,593.40—a clear benefit.

For the 2026–27 tax year, the income tax rates are:

• $0–$18,200: Nil
• $18,201–$45,000: 15c per $1 over $18,200
• $45,001–$135,000: $4,020 plus 30c per $1 over $45,000
• $135,001–$190,000: $31,020 plus 37c per $1 over $135,000
• Over $190,000: $51,370 plus 45c per $1 over $190,000

Plus the Medicare levy of 2% of taxable income. The latest single-person Medicare thresholds are $28,011 and $35,013; if your taxable income is below $28,011 you pay no levy, and between $28,011 and $35,013 you pay a reduced rate of 10c per dollar over the lower threshold. Full-time salaries almost always exceed these thresholds, so you pay the full 2%.

Super Guarantee and Salary Sacrifice

Salary sacrificed super contributions are treated as employer contributions and are not fringe benefits if paid to a complying super fund. Your employer must still pay the full super guarantee (12% from 1 July 2026) on your ordinary time earnings, as if no salary sacrifice existed. The sacrificed super is additional to that. However, all concessional contributions (employer guarantee plus salary sacrifice) count towards the annual cap, which is $32,500 for 2026–27. Exceeding the cap may incur extra tax.

Considerations Before You Sacrifice

Salary sacrifice can affect:

• The Medicare levy surcharge (if you don't have private hospital cover and your income is above the threshold)
• Study and training loan repayments
• Some tax offsets
• Child support payments
• Government benefits such as Family Tax Benefit

You cannot claim a tax deduction for an expense your employer pays as part of your package. Also, if you do not receive the promised benefit and it is cashed out, the amount becomes salary and is taxed as normal income.

Is It Right for You?

Salary sacrifice is most effective when you use it to pay for things you would buy anyway with after-tax dollars, especially if you are in a higher tax bracket. For example, sacrificing into super saves you tax at your marginal rate (up to 45% plus Medicare) while the super fund pays only 15% on contributions. Use our Salary packaging guide and Take-home pay calculator to model your own situation. Remember that your employer must agree to the arrangement and you must set it up before you earn the income.

Final Word

Understanding what can you salary sacrifice helps you make informed choices about your pay package. By reducing your taxable income, you can keep more of what you earn—but only if the benefits and costs stack up in your favour. Always check the fine print and consider speaking with a tax professional.

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This article is a guide only and does not constitute tax advice. Tax rates are for 2026–27. Salary sacrifice outcomes vary by individual circumstances.