Salary packaging Australia: How it affects your take-home pay

Salary packaging Australia: Gross salary, package, and take-home pay

When you see a job advertisement quoting a salary, it is often the gross figure – the amount before tax, the Medicare levy, and any salary sacrifice arrangements. But your actual take-home pay – what lands in your bank account each fortnight – can look quite different if you use salary packaging (also known as salary sacrifice). This guide explains how salary packaging Australia works and how it changes your net income.

What is salary packaging?

Salary packaging is an arrangement where you and your employer agree to reduce your pre-tax salary in exchange for certain benefits. The Australian Taxation Office explains that this reduces your taxable income, meaning you may pay less tax. Common benefits include a car, super contributions, childcare, or electronic devices. The key is that you must enter the arrangement before you perform the work, and you cannot access the sacrificed salary later.

How salary packaging affects your tax and take-home pay

Because your taxable income is lower, the income tax and Medicare levy withheld from your pay are smaller. However, your employer may have to pay fringe benefits tax (FBT) on the value of the benefit. To reduce FBT, you might make an employee contribution from your after-tax income. The net effect on your disposable income depends on the numbers.

The Australian Taxation Office provides a detailed example for Sam in 2025–26. With a $65,000 annual remuneration and a car benefit worth $7,000, Sam’s net disposable income is:

• Without packaging: $41,912
• With packaging but no employee contribution: $41,612
• With packaging and a $7,000 employee contribution: $43,593

This shows that careful structuring can increase your take-home pay. The example uses the 2025–26 tax rates, but for 2026–27 the rates are slightly different (see below.

Tax rates for 2026–27

For the 2026–27 income year, Australian resident tax rates are:

• $0 – $18,200: Nil
• $18,201 – $45,000: 15c for each $1 over $18,200
• $45,001 – $135,000: $4,020 plus 30c for each $1 over $45,000
• $135,001 – $190,000: $31,020 plus 37c for each $1 over $135,000
• $190,001 and over: $51,370 plus 45c for each $1 over $190,000

Plus the Medicare levy of 2%. The low-income tax offset (LITO) can reduce tax for lower incomes. Note that the Medicare levy thresholds for singles 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 you pay a reduced rate.

Salary sacrifice into super

Putting some of your pre-tax income into super is a popular form of salary packaging. These contributions are taxed at 15% inside your super fund – the same as your employer’s super guarantee. They count towards the concessional cap of $32,500 per year (including your employer’s super guarantee). Your employer must still pay your full super guarantee on your original salary, so salary sacrifice super is additional. This is a way to boost your retirement savings while reducing your take-home pay.

Important considerations

Before entering a salary packaging arrangement, consider:

• The arrangement must be agreed before you perform the work.
• Benefits that are fringe benefits may be reported on your income statement in myGov and affect the Medicare levy surcharge, study and training loan repayments, child support, and some government benefits.
• From 1 April 2026? Actually from 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt and will be subject to FBT.
• You cannot claim a tax deduction for an expense your employer pays for as part of your salary package.
• Salary packaging is usually more effective for people on middle to high incomes because their marginal tax rate is higher.

For more details, see the Salary packaging guide and the Take-home pay calculator. The Australian Taxation Office shows the full rules at and Moneysmart explains the basics at .

Summary

Your take-home pay is not simply your gross salary minus tax. Salary packaging can reduce your taxable income, but you must also forgo the salary you sacrifice. The net effect on your bank account each fortnight depends on the benefits, any employee contributions, and your marginal tax rate. Use the Clearance tool to estimate your take-home pay with or without packaging, and always check the latest ATO guidance.