What can you salary sacrifice in Australia? How it changes your fortnightly take-home pay

What can you salary sacrifice in Australia? Understanding the impact on your fortnight

If you are an employee in Australia, you may have heard about salary sacrifice (also called salary packaging) as a way to reduce your tax and increase your take-home pay. But what can you salary sacrifice in Australia, and how does it actually change the amount that lands in your bank account each fortnight? This guide explains the key factors: tax brackets, the Medicare levy, and superannuation.

Salary sacrifice is an arrangement where you and your employer agree to exchange part of your pre-tax salary for benefits of similar value. The Australian Taxation Office (ATO) explains that this reduces your taxable income, meaning you pay less tax on your income. However, your employer may have to pay fringe benefits tax (FBT) on some benefits, which can affect the overall value.

How salary sacrifice changes your tax brackets

Your take-home pay is determined by your taxable income after applying the tax brackets and the Medicare levy. For 2026–27, the tax rates are:

• Nil on the first $18,200
• 15c per $1 from $18,201 to $45,000
• 30c per $1 from $45,001 to $135,000
• 37c per $1 from $135,001 to $190,000
• 45c per $1 over $190,000

Plus the Medicare levy of 2% (full rate for most taxpayers). The latest single-person Medicare thresholds are $28,011 and $35,013 – if your taxable income is below $28,011 you pay no Medicare levy; between $28,011 and $35,013 you pay a reduced rate.

When you salary sacrifice, your taxable income drops. For example, if you earn $65,000 and salary sacrifice $17,353 for a car, your taxable income falls to $47,647. Your income tax reduces from $10,288 to $5,082, and your Medicare levy from $1,300 to $953. That is a significant saving. But you also need to consider any employee contributions or FBT. The ATO's example shows that with employee contributions, your net disposable income can actually be higher than without packaging.

The Medicare levy and salary sacrifice

The Medicare levy is calculated on your taxable income. By reducing your taxable income through salary sacrifice, you also reduce your Medicare levy. However, if your taxable income falls below the thresholds, you may pay less or no Medicare levy. Note that the Medicare levy surcharge (for singles without appropriate private health insurance) is based on your income for surcharge purposes, which includes reportable fringe benefits. So salary sacrifice can affect that too.

Super and salary sacrifice

You can salary sacrifice into super. The ATO states that these contributions are treated as employer contributions and are taxed in the super fund at 15%, which is generally lower than your marginal tax rate. Importantly, your employer must still pay the super guarantee (12% from 1 July 2026) on your ordinary time earnings, calculated as if you had not salary sacrificed. So salary sacrifice super contributions are additional to your super guarantee.

Salary sacrifice super contributions count towards the concessional contributions cap of $32,500 per year (2026–27). If you exceed this, you pay extra tax. Also, if your combined income and concessional contributions exceed $250,000, Division 293 tax may apply.

What benefits can you salary sacrifice?

There is no restriction on the types of benefits, but it depends on what your employer offers. Common benefits include cars, super, laptops, childcare, and health insurance. Some benefits are exempt from FBT, such as work-related items (until 1 April 2027) and super contributions. The Moneysmart website notes that benefits fall into three categories: fringe benefits (subject to FBT), exempt benefits, and super.

How it affects your fortnightly take-home

Your take-home pay each fortnight is your salary minus tax, Medicare levy, and any salary sacrifice amount (which is taken before tax). If you salary sacrifice, your employer deducts the sacrificed amount from your gross pay before calculating PAYG withholding. So your net pay (the amount deposited into your bank account) will be lower than your gross salary, but you receive the benefit (e.g., a car or super contribution) instead. The key is whether the tax savings outweigh the cost of the benefit.

For example, using the ATO's scenario: on a $65,000 salary with a car salary sacrifice and employee contributions, your net disposable income after tax, Medicare, and car expenses is $43,593, compared to $41,912 without packaging. That is an extra $1,681 per year, or about $65 per fortnight.

Considerations before you start

Before entering a salary sacrifice arrangement, consider:

• The impact on government benefits, child support, and study loan repayments.
• The reportable fringe benefits amount, which may affect the Medicare levy surcharge and other thresholds.
• That you cannot claim a tax deduction for expenses your employer pays for as part of the package.
• That you must enter the arrangement before you earn the income.

For more details on how salary sacrifice interacts with your tax brackets and Medicare levy, see our Take-home pay guide and Salary packaging page. You can also use the Clearance tool to estimate your net pay.

In summary, what can you salary sacrifice in Australia? Many things – but the effect on your fortnightly take-home depends on your income, the benefit, and any associated costs. Always check with your employer and consider seeking professional advice.