What is salary sacrifice in Australia? How it affects your take-home pay
Pay varies depending on your salary package and the benefits you choose; salary sacrifice can increase your net disposable income if structured correctly.
What is salary sacrifice in Australia?
Salary sacrifice – also called salary packaging or total remuneration packaging – is an agreement between you and your employer to swap part of your pre-tax salary for benefits of similar 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 a car, laptop, health insurance, school fees, or additional super contributions. The key is that you must arrange the sacrifice before you earn the income; you cannot sacrifice salary you have already received.
How salary sacrifice affects your take-home pay
When you compare job offers, the headline salary is not the amount that reaches your bank account. After income tax and the Medicare levy, your take-home pay is lower. Salary sacrifice can change that calculation. By reducing your taxable income, you may fall into a lower tax bracket or reduce the amount of tax withheld each pay period. However, your employer may have to pay fringe benefits tax (FBT) on certain benefits, and they might ask you to make an employee contribution to cover that cost. The ATO provides a clear example: for a $65,000 salary, a car benefit without employee contributions leaves a net disposable income of $41,611.96, while with a $7,000 employee contribution the net disposable income rises to $43,593.40 – even though you pay $7,000 out of pocket, the tax saving makes it worthwhile.
Salary sacrifice and super
You can also salary sacrifice into super. These contributions are treated as employer contributions and are taxed at 15% in the fund, which is generally lower than your marginal rate. They count toward your concessional contributions cap ($32,500 for 2026–27). Importantly, your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary, not the sacrificed amount. Salary sacrifice super contributions are not subject to FBT, making them a tax-effective way to boost your retirement savings. The ATO notes that there is no limit to how much you can salary sacrifice into super, but exceeding the cap may incur additional tax.
Comparing job offers with salary sacrifice
When evaluating a job offer, look beyond the base salary. Ask the employer what salary packaging options are available. Some employers offer novated leases, electronic devices, or childcare benefits. Use the Take-home pay calculator to estimate your net income with and without salary sacrifice. Remember that the Medicare levy is 2% of your taxable income, but if your income is below $28,011 (single) you pay nothing, and between $28,011 and $35,013 you pay a reduced rate. These are the latest published single-person Medicare thresholds. Salary sacrifice can lower your taxable income enough to reduce or eliminate the Medicare levy.
Key considerations
- Fringe benefits tax: Most benefits (except super and some exempt items) attract FBT at the top marginal rate. Your employer may pass this cost to you via an employee contribution.
- Government benefits: Salary sacrifice can affect child support, family tax benefit, and the Medicare levy surcharge. The ATO warns that reportable fringe benefits appear on your income statement and may impact these.
- Super guarantee: Your employer cannot reduce your super guarantee because of salary sacrifice. They must pay it on your original salary.
- Professional advice: Because salary packaging interacts with tax offsets, the low-income tax offset (LITO), and your marginal rate, it is wise to consult a tax professional. The Salary packaging guide on this site provides more detail.
Bottom line
Salary sacrifice can increase the amount that reaches your bank account by reducing your tax bill. But it is not a one-size-fits-all solution. Use the ATO’s examples and your own numbers to compare net disposable income. The goal is to understand what you will actually have in your pocket each fortnight, after all deductions and benefits. For most employees, salary sacrifice into super is a safe option, while other benefits require careful calculation of FBT and employee contributions.
Questions
How does salary sacrifice affect my take-home pay?
Salary sacrifice reduces your taxable income because you agree to forgo part of your pre-tax salary in exchange for benefits like a car or super contributions. This lowers the income tax and Medicare levy deducted from your pay, so your take-home pay may increase if the benefits are tax-effective. However, your employer may pass on fringe benefits tax (FBT) costs, which can reduce the net gain. Always compare the net disposable income after all deductions, as shown in the ATO example.
Can I salary sacrifice into super and how does that work?
Yes, you can salary sacrifice part of your pre-tax salary into your super fund. These contributions are taxed at 15% inside the fund, which is often lower than your marginal tax rate. They count towards your concessional contributions cap ($32,500 for 2026–27) and are in addition to your employer's super guarantee. Your employer must still pay the full super guarantee on your original salary, not the reduced amount. Salary sacrifice super contributions are not subject to FBT.
Is salary sacrifice always worth it?
Not always. Salary packaging is most beneficial for people on middle to high incomes because their marginal tax rate is higher. You need to consider the type of benefits offered, any FBT your employer may pass on, and the impact on government benefits, child support, or the Medicare levy surcharge. The ATO and Moneysmart recommend getting professional tax advice to see if it suits your situation. For example, a car lease may save tax but could leave you with less cash if the FBT cost outweighs the tax saving.