How salary packaging rent can boost your take-home pay

What is salary packaging rent?

Salary packaging rent is an arrangement where you use part of your pre-tax salary to pay for your rent. Normally, rent comes out of your after-tax income. With salary packaging, your employer pays or reimburses your rent from your pre-tax salary, reducing your taxable income and potentially increasing your take-home pay.

This is a form of salary packaging, also called salary sacrifice. The Australian Taxation Office explains that you and your employer agree for you to receive less salary before tax in return for certain benefits. There is no restriction on the types of benefits, but your employer may have to pay fringe benefits tax (FBT) on some packaged benefits. Rent is considered a fringe benefit for eligible employees.

Who can salary package rent?

Not everyone can salary package rent. The Australian Taxation Office and Moneysmart indicate that eligibility depends on your employer. You can typically package rent if you work for:

• Public hospitals or public health services
• Registered charities
• Not-for-profit organisations
• Public benevolent institutions (PBIs)

For most private sector employees, rent is a private expense and cannot be salary packaged. Check with your employer or salary packaging provider to see if you qualify.

How salary packaging rent works

If you are eligible, you can allocate a portion of your pre-tax salary towards rent payments. The amount you can package is capped each FBT year (1 April to 31 March). For not-for-profit employees (including most aged care and disability workers), the cap is $15,900 per year for everyday living expenses, which can include rent. For eligible healthcare workers in public or not-for-profit hospitals, the cap is $9,010 per year.

You set up the arrangement with your employer before you perform the work. Your employer then pays or reimburses your rent from your pre-tax salary. The sacrificed amount is deducted from your taxable income, so you pay less income tax and Medicare levy.

Example: How it boosts take-home pay

Consider an employee earning $75,000 per year who rents for $600 per week. If they are eligible and package the maximum $15,900 towards rent, their taxable income drops to $59,100. Using the 2026–27 tax rates and Medicare levy (2%), their after-tax income increases from $44,580 to $49,668 – a gain of $5,088 per year. That is equivalent to earning a salary of $82,482 without packaging.

This example is from and illustrates the potential. Your actual result depends on your salary, the cap, and any employee contributions your employer may require to reduce FBT.

How it compares to benchmarks

The national minimum wage is $26.44 per hour and $1,004.90 per week, or about $52,255 per year (based on 38 hours per week, 52 weeks). Full-time adult ordinary time earnings average $2,083.70 per week, or $108,352 per year. The example above ($75,000 salary with packaging) produces take-home pay equivalent to $82,482, which is above the minimum wage but below full-time ordinary earnings. Salary packaging rent can be a valuable tool for middle-income earners in eligible sectors to increase their take-home pay without changing jobs.

Impact on tax and Medicare

Salary packaging rent reduces your taxable income, so you pay less income tax. The Medicare levy is still calculated at 2% of your taxable income, but a lower taxable income means a lower levy. If your taxable income falls between $28,011 and $35,013 (the latest single-person Medicare thresholds), you pay a reduced Medicare levy at a shading rate of 10 cents per dollar over the lower threshold. Full-time salaries generally pay the full 2%.

Note that salary packaging can affect other things like the Medicare levy surcharge, study loan repayments, some tax offsets, and government benefits. The Australian Taxation Office advises you to consider these impacts before entering an arrangement.

Things to consider

• Your employer may ask you to make an employee contribution to reduce the FBT they have to pay. This can affect your net benefit.
• Salary sacrificed super contributions are treated as employer contributions and are not subject to FBT. They are additional to your super guarantee entitlements.
• From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT.
• You cannot claim a tax deduction for expenses your employer pays under the arrangement.

For more details, see our guides on salary packaging and tax and Medicare. You can also use our clearance tool to estimate your take-home pay with and without salary packaging.