How salary packaging not for profit changes your fortnightly take-home pay

How salary packaging not for profit changes your fortnightly take-home pay

If you work for a not-for-profit organisation, you may have access to salary packaging (also called salary sacrifice). This arrangement lets you swap part of your pre-tax salary for benefits like a car, school fees, or extra super. The result? Your taxable income drops, and so does the tax and Medicare levy taken from your pay. But the exact effect on your fortnightly take-home pay depends on your income, the benefits you choose, and your employer’s fringe benefits tax (FBT) status.

What salary packaging does to your taxable income

Under a salary sacrifice agreement, you permanently give up part of your future salary or wages. In return, your employer provides benefits of similar cost. Because you never receive that salary, it is not included in your assessable income. The Australian Taxation Office explains that an effective arrangement must be made before you earn the salary, and you cannot access the sacrificed amount later.

For example, if your annual salary is $65,000 and you salary package a car worth $17,353, your taxable income drops to $47,647. Using 2026–27 tax rates, your income tax falls from about $10,288 to $5,082, and your Medicare levy drops from $1,300 to $953. That is a significant boost to your after-tax income, even after accounting for any employee contributions you might make to reduce your employer’s FBT.

The role of FBT and not-for-profit concessions

Most packaged benefits are fringe benefits, and your employer must pay FBT on their taxable value. However, many not-for-profit organisations receive FBT concessions or exemptions. This means they can provide benefits without incurring the tax, making salary packaging more attractive for you. The ATO notes that from 1 April 2027, work-related items like laptops and phones will no longer be FBT-exempt, so check with your employer about what is available now.

If your employer must pay FBT, they may ask you to make an employee contribution from your after-tax pay. This reduces the FBT liability but also lowers your net disposable income. The table in the ATO’s guide shows that with a $7,000 employee contribution, your net disposable income can actually be higher than without packaging, because you avoid paying for the car yourself with after-tax dollars.

How the Medicare levy changes

The Medicare levy is 2% of your taxable income. By reducing your taxable income through salary packaging, you pay less Medicare levy. The latest single-person thresholds are $28,011 and $35,013. If your packaged salary falls below the lower threshold, you pay no levy. Between the thresholds, you pay a reduced rate. For most full-time workers, your income will still be above $35,013, so you will pay the full 2% – but on a smaller base. This is a direct saving in your fortnightly take-home pay.

Super guarantee and salary sacrifice

Salary sacrificing into super is a common strategy. The contributions are treated as employer contributions and are taxed at 15% in your super fund. Importantly, your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary, not the reduced amount. The ATO confirms that salary sacrificed contributions do not reduce the super guarantee your employer is required to pay.

This means you can boost your super without losing the compulsory contributions. However, the combined total of your employer’s super guarantee and your salary sacrifice contributions must stay within the concessional cap ($32,500 for 2026–27) to avoid extra tax.

What changes your fortnightly take-home pay

Your fortnightly take-home pay is the amount that lands in your bank account after tax and the Medicare levy. Salary packaging changes this in three ways:

• Lower taxable income – you move into a lower tax bracket, reducing the tax withheld each fortnight.
• Lower Medicare levy – the 2% is applied to a smaller amount.
• Employee contributions – if you make after-tax contributions to reduce your employer’s FBT, those are deducted from your pay, lowering your take-home cash.

But remember: you also receive the packaged benefits (like a car or school fees) that you would otherwise pay for with after-tax money. So your overall financial position often improves, even if your cash take-home is slightly lower due to employee contributions.

Practical steps

Before entering a salary packaging arrangement, use a take-home pay calculator to estimate your new fortnightly amount. Consider the impact on government benefits, child support, and study loan repayments. The ATO warns that salary packaging can affect these because your reduced taxable income may change your eligibility or repayment amounts.

Also, check what benefits your not-for-profit employer offers. Many provide salary packaging for cars, laptops, childcare, and super. The key is to arrange the package before you earn the salary – you cannot sacrifice income you have already earned.

Summary

Salary packaging not for profit can significantly increase your net disposable income by reducing tax and Medicare levy. Your fortnightly take-home pay will reflect a lower tax withholding, but may be reduced by employee contributions. The super guarantee remains intact, and you can add extra super contributions through sacrifice. Always review the full picture, including FBT implications and your personal circumstances, to decide if packaging is right for you.

For more details, see the Salary packaging guide and the Tax and Medicare page.