How Defence Salary Sacrifice Affects Your Take-Home Pay

Understanding Your Take-Home Pay with Defence Salary Sacrifice

When you work out what actually lands in your bank account each fortnight, you need to account for income tax, the Medicare levy, and any salary sacrifice arrangements. For Australian Defence Force members, salary sacrifice – often called salary packaging – is a common way to reduce your taxable income and increase your net pay. This guide explains how defence salary sacrifice works and how it affects the amount you take home.

What Is Defence Salary Sacrifice?

Salary sacrifice is an agreement between you and Defence where you forgo part of your before-tax salary in return for benefits such as a car, electronic devices, or extra super contributions. The Australian Taxation Office states that an effective arrangement must be entered before you perform the work, and you cannot access the sacrificed amount. The benefits replace what would otherwise be salary, lowering your taxable income.

Defence offers salary packaging through its Workplace Remuneration Arrangement. You can package a range of items, including laptops, e-bikes, and car leases. The ATO notes that from 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from fringe benefits tax, so it is worth reviewing your package now.

How Salary Sacrifice Reduces Your Tax

Let’s look at a simplified example. Suppose your annual salary before sacrifice is $80,000. Without salary sacrifice, your taxable income is $80,000. Using the 2026–27 tax rates:

• Tax on first $18,200: $0
• Tax on $18,201 to $45,000: 15c per $1 = $4,020
• Tax on $45,001 to $80,000: 30c per $1 = $10,500
• Total tax before offsets: $14,520
• Less Low Income Tax Offset (LITO): $325 (since taxable income is over $45,000, LITO reduces by 1.5c per $1 over $45,000)
• Income tax after LITO: $14,195
• Medicare levy (2% of $80,000): $1,600
• Total deductions: $15,795
• Take-home pay: $64,205

Now, if you salary sacrifice $15,000 for a car, your taxable income drops to $65,000. Tax on $65,000:

• Tax on first $18,200: $0
• Tax on $18,201 to $45,000: $4,020
• Tax on $45,001 to $65,000: 30c per $1 = $6,000
• Total tax before offsets: $10,020
• LITO: $325 (still applies as taxable income is $65,000, but note LITO phases out completely at $66,667)
• Income tax after LITO: $9,695
• Medicare levy (2% of $65,000): $1,300
• Total deductions: $10,995
• Take-home pay: $54,005

But you also receive the car benefit worth $15,000. Your net disposable income is $54,005 plus the car. Compare that to the no-sacrifice scenario where you had $64,205 cash but had to pay $11,500 for car expenses (as in the ATO example). In the sacrifice scenario, you end up with more disposable income because the car is provided pre-tax.

ADF-Specific Benefits and Super

Defence provides a comprehensive remuneration package. According to , members receive fortnightly pay including salary and allowances. Super contributions are 16.4% of income for those who joined on or after 1 July 2016. This is above the standard 12% super guarantee rate that applies to most Australian employees from 1 July 2026.

You can also salary sacrifice additional super contributions. The ATO clarifies that salary sacrificed super is not a fringe benefit if paid to a complying fund. Your employer must still pay the full super guarantee on your original salary, so this is an effective way to boost retirement savings while reducing current tax.

Medicare Levy and Thresholds

The Medicare levy is 2% of your taxable income, but low-income earners pay less. For 2026–27, the latest published single-person thresholds are $28,011 and $35,013. If your taxable income after salary sacrifice is below $28,011, you pay no Medicare levy. Between $28,011 and $35,013, you pay 10 cents per dollar over the lower threshold. Above $35,013, the full 2% applies. Because salary sacrifice reduces your taxable income, it can move you into a lower Medicare bracket, saving you money.

Putting It All Together: Your Take-Home Pay

To estimate your take-home pay, start with your gross salary, subtract any salary sacrifice amount, then apply the tax rates and Medicare levy. Remember that super is not deducted from your take-home pay if your salary is quoted as “plus super”. Defence’s 16.4% super contribution is on top of your salary.

Use our Take-home pay calculator to see how different salary sacrifice amounts affect your net income. For more on packaging options, see our Salary packaging guide.

Important Considerations

• Salary sacrifice reduces your taxable income, which may lower your eligibility for some government benefits or increase your child support payments. Check with a financial adviser.
• The ATO warns that from 1 April 2027, work-related items provided through salary sacrifice will be subject to FBT, so plan accordingly.
• Defence salary sacrifice arrangements must be in place before you earn the income. You cannot sacrifice past earnings.
• Your employer must report the fringe benefits on your income statement, which may affect the Medicare levy surcharge if you earn above the threshold.

By understanding how defence salary sacrifice interacts with tax and Medicare, you can make informed decisions that maximise your after-tax income.