How to salary sacrifice: understanding the difference between gross salary, package and take-home pay

How to salary sacrifice: what it means for your take-home pay

If you have ever looked at a job advertisement and wondered why the figure quoted is not what lands in your bank account, you are not alone. Many employees confuse their gross salary, their total remuneration package and their actual take-home pay. One of the most common ways to adjust that mix is through salary sacrifice – also called salary packaging. This guide explains how to salary sacrifice, how it affects your tax and Medicare levy, and what you need to watch out for.

What is salary sacrifice?

Salary sacrifice is an arrangement between you and your employer where you agree to receive less pre-tax salary in exchange for a benefit of similar value. The Australian Taxation Office explains that this reduces your taxable income, meaning you may pay less tax. Benefits can include a car, super contributions, childcare, computers or other work-related items. However, from 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from fringe benefits tax (FBT).

You must enter the arrangement before you perform the work. You cannot sacrifice salary that has already accrued, and you cannot access the sacrificed amount during the arrangement. If the benefit is cashed out, it becomes salary and is taxed as normal income.

How salary sacrifice changes your take-home pay

Your take-home pay is what remains after income tax and the Medicare levy are deducted. When you salary sacrifice, your taxable income drops, so the tax withheld is lower. But the benefit you receive (for example, a car or super contribution) is not cash in your hand. The table from the ATO shows a clear example: an employee earning $65,000 who sacrifices $17,353 for a car ends up with a net disposable income of $41,611.96 – slightly less than the $41,912.00 they would have without salary sacrifice if they paid for the car themselves. However, with an employee contribution to reduce FBT, the net disposable income rises to $43,593.40.

This illustrates that salary sacrifice is not always a straight win. You need to compare the cost of the benefit if you paid for it yourself versus the net effect after tax and FBT. The Salary packaging page on this site can help you model your own situation.

The Medicare levy and thresholds

Most residents pay the Medicare levy of 2% of taxable income. The latest published single-person 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, the levy is 10 cents per dollar over the lower threshold. Above $35,013, you pay the full 2%. Salary sacrifice can push your taxable income below these thresholds, potentially reducing or eliminating the Medicare levy. However, if you are on a full-time salary, you will almost certainly pay the full 2%.

Super and salary sacrifice

Salary sacrificed super contributions are treated as employer contributions and are not subject to FBT if paid to a complying super fund. They are additional to your super guarantee entitlement. The concessional contributions cap for 2026–27 is $32,500, which includes your employer’s super guarantee and any salary sacrificed amounts. Going over the cap may result in extra tax.

Minimum wage and benchmarks

For context, the national minimum wage from 1 July 2026 is $26.44 per hour and $1,004.90 per week (based on a 38-hour week). An employee on the minimum wage earning $52,255 annually would pay tax and Medicare levy, leaving a take-home pay of around $43,000 depending on their circumstances. Salary sacrifice is less common at this level because the tax savings are smaller, but it can still be used for super contributions.

Common mix-ups

• Gross salary is the figure before any deductions, including tax, super and salary sacrifice.
• Total remuneration package includes the gross salary plus the value of any benefits provided by the employer (such as a car or super). This is often higher than the cash salary.
• Take-home pay is what actually hits your bank account after tax, Medicare levy and any salary sacrifice deductions.

When you see a job ad quoting a package of $100,000, that might include $85,000 cash salary and $15,000 in benefits. Your take-home pay would be based on the $85,000, not the $100,000. Always ask for the cash salary component.

How to set up a salary sacrifice arrangement

First, talk to your employer about whether they offer salary packaging and what benefits are available. The guide recommends checking what your employer offers. You will need a written agreement before you start work or before the benefit is provided. Your employer will calculate the FBT implications and may ask you to make an employee contribution to reduce the FBT they have to pay.

You cannot claim a tax deduction for an expense your employer pays for as part of your salary package. The Australian Taxation Office provides detailed examples and a calculator to compare scenarios.

Impact on government benefits and loans

Salary sacrifice can affect the Medicare levy surcharge, study and training support loan repayments, some tax offsets, child support payments and certain government benefits. Because your reportable fringe benefits amount appears on your income statement, it may push you into a higher bracket for these purposes. Always check the full picture before signing up.

Final thoughts

Understanding how to salary sacrifice is essential for anyone considering a job with a total remuneration package. The key is to separate the cash salary from the benefits and calculate your actual take-home pay using the tax rates for 2026–27. Use the Take-home pay calculator on this site to see the effect of different salary sacrifice amounts. And remember: the arrangement must be in place before you earn the income – you cannot go back and sacrifice after the fact.