How Australia Salary Sacrifice Affects Your Take-Home Pay

What Is Salary Sacrificing?

Salary sacrificing – also called salary packaging or total remuneration packaging – is an agreement between you and your employer. You agree to receive less before-tax income, and in return your employer pays for certain benefits of similar value. This reduces your taxable income, so you pay less income tax and Medicare levy.

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. Common examples are cars, laptops, and super contributions. Your employer may need to pay fringe benefits tax (FBT) on the value of the benefit. To reduce that FBT, you can make employee contributions from your after-tax pay.

Example: How Salary Sacrifice Changes Net Disposable Income

The ATO provides a clear comparison for Sam, who earns $65,000 a year. In three scenarios:

1. No salary sacrifice – Sam pays tax and Medicare on $65,000, then pays $11,500 in car expenses from after-tax money. Net disposable income: $41,912.
2. Salary sacrifice without employee contributions – Sam sacrifices $17,353 for a car. Taxable income drops to $47,647. After tax and Medicare, net disposable income is $41,611.96 – slightly less than scenario 1.
3. Salary sacrifice with employee contributions – Sam sacrifices only $4,145 and makes a $7,000 employee contribution. Taxable income is $60,855. After tax, Medicare, and the contribution, net disposable income is $43,593.40 – the highest of the three.

This shows that structuring your salary sacrifice with employee contributions can boost your take-home pay.

How Salary Sacrifice Affects Your Take-Home Pay

Your take-home pay is what reaches your bank account after income tax and the Medicare levy. By lowering your taxable income, salary sacrifice reduces both. For the 2026–27 tax year, the resident 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
• $190,001+: $51,370 plus 45c per $1 over $190,000

Plus the Medicare levy of 2% of taxable income.

Compare this to the national minimum wage: $26.44 per hour, $1,004.90 per week, or about $52,255 a year (from 1 July 2026). The average full-time adult ordinary time earnings are $2,083.70 per week, or $108,352 a year (ABS, May 2026). If you earn around the minimum wage, salary sacrificing a small amount might push you into a lower tax bracket, increasing your take-home pay. For someone on full-time ordinary time earnings, the marginal rate is 30c or 37c, so sacrificing into super or a car can save significant tax.

Remember: super guarantee is still paid on your original salary, not the sacrificed amount. So your super balance benefits from both the guarantee and any salary-sacrificed contributions.

Salary Sacrifice and the Medicare Levy

The Medicare levy is 2% of your taxable income. The latest single-person thresholds are $28,011 and $35,013. If your taxable income is below $28,011, you pay no levy; between $28,011 and $35,013, you pay 10c per $1 over the lower threshold. Full-time salaries almost always exceed $35,013, so you pay the full 2%. By reducing your taxable income through salary sacrifice, you lower the levy amount.

Important Considerations

• Effective arrangement: You must agree before you earn the income, have a written agreement, and cannot access the sacrificed salary.
• FBT changes: From 1 April 2027, work-related items provided via salary sacrifice will no longer be exempt from FBT.
• Government benefits: Salary sacrifice can affect child support, some tax offsets, and study loan repayments.
• No double deduction: You cannot claim a tax deduction for an expense your employer pays as part of your package.

For more details, see our guides on Take-home pay, Salary packaging, and Super. You can also compare your situation against the Minimum wage and Average pay benchmarks.