The benefits of salary sacrifice: the benefits of salary sacrifice benefits of salary sacrifice and how it changes your fortnightly take-home pay
For a $65,000 salary, the ATO shows salary sacrificing a car with employee contributions can increase net disposable income from $41,912 to $43,593 per year, depending on the arrangement.
How salary sacrifice changes your fortnightly take-home
When you enter a salary sacrifice arrangement, you agree to swap part of your pre-tax salary for a benefit such as a car, laptop, or extra super contributions. The Australian Taxation Office explains that this reduces your taxable income, meaning you pay less income tax and Medicare levy. The result is that your take-home pay each fortnight can be higher than if you had paid for the benefit with after-tax dollars.
The mechanics: what changes your fortnight
Your fortnightly pay is affected by three main factors: the tax brackets you fall into, the Medicare levy, and any salary sacrifice contributions. The ATO provides a clear example for a $65,000 salary in 2025–26. Without salary sacrifice, net disposable income is $41,912 per year ($1,612 per fortnight). With a car benefit and no employee contributions, it drops slightly to $41,612. But when you make an employee contribution of $7,000, net disposable income rises to $43,593 per year ($1,676 per fortnight). That’s an extra $64 per fortnight.
Tax brackets and the Medicare levy
The tax rates for 2026–27 (from the on-site reference) show that the first $18,200 is tax-free, then 15c per dollar up to $45,000, and 30c per dollar up to $135,000. By reducing your taxable income through salary sacrifice, you may stay in a lower bracket or reduce the amount taxed at higher rates. The Medicare levy of 2% applies to your taxable income, but if your income falls below the single lower threshold of $28,011, you pay no levy. Between $28,011 and $35,013, you pay a reduced rate. Salary sacrifice can help you cross these thresholds.
Super: a special case
Salary sacrificing into super is not a fringe benefit, so your employer does not pay FBT. The contributions are taxed at 15% inside your super fund, which is often less than your marginal rate. For example, if you are in the 30% bracket, you save 15% tax on the amount sacrificed. Your super guarantee (12% from 1 July 2026) is still paid on your original salary, so your total super grows faster. The concessional cap is $32,500 for 2026–27, including your employer’s contributions. The [ATO notes that salary sacrifice super contributions are additional to your super guarantee entitlements.
Practical considerations
Before setting up a salary sacrifice arrangement, check what your employer offers. The [Moneysmart website explains that you must arrange salary packaging before you earn the income. You cannot sacrifice after you’ve been paid. Also, some benefits like cars attract FBT, which your employer may pass on to you through employee contributions. The ATO shows that making a contribution can actually increase your net disposable income.
Summary
The benefits of salary sacrifice benefits of salary sacrifice can be significant. By reducing your taxable income, you pay less tax and Medicare levy, and your fortnightly take-home can increase. However, the impact depends on your salary, the benefit type, and whether you make employee contributions. Use the Take-home pay calculator to estimate your own figures, and read the Salary packaging guide for more details.
Questions
What is salary sacrifice?
Salary sacrifice, also called salary packaging, is an agreement with your employer to receive less pre-tax salary in exchange for benefits of equal value, such as a car or super contributions. This reduces your taxable income, so you pay less income tax and Medicare levy. Your employer may pay fringe benefits tax (FBT) on some benefits, which can affect the net saving.
How does salary sacrifice affect my super?
Salary sacrificing into super means your employer pays additional contributions to your super fund from your pre-tax salary. These are taxed at 15% inside super, which is often lower than your marginal tax rate. They count towards your concessional contributions cap ($32,500 for 2026–27). Your employer must still pay the super guarantee on your original salary, so your total super can grow faster.
Does salary sacrifice affect the Medicare levy?
Yes, because salary sacrifice lowers your taxable income, you may pay less Medicare levy (2% of taxable income). If your reduced income falls below the single threshold ($28,011 for 2026–27), you may pay no levy, or a reduced amount if between $28,011 and $35,013. However, the reportable fringe benefits amount may affect your eligibility for certain government benefits and the Medicare levy surcharge.