Understanding Salary Sacrifice Australia: How It Affects Your Take-Home Pay

What Is Salary Sacrifice Australia?

Salary sacrifice (also called salary packaging or total remuneration packaging) is an agreement between you and your employer to reduce your pre-tax salary in exchange for benefits of similar value. This arrangement lowers your taxable income, meaning you pay less income tax and Medicare levy. The Australian Taxation Office explains that there is no restriction on the types of benefits you can include, as long as they form part of your remuneration. Common benefits include cars, super contributions, electronic devices, and health insurance.

How Salary Sacrifice Affects Your Take-Home Pay

Your take-home pay after salary sacrifice depends on several factors: the amount sacrificed, the type of benefit, any employee contributions you make to reduce your employer's FBT, and your marginal tax rate. The ATO provides a detailed example for the 2025–26 year comparing three scenarios for Sam, who earns $65,000 annually:

• No salary sacrifice: Taxable income $65,000, income tax $10,288, Medicare $1,300, car expenses $11,500, net disposable income $41,912.
• Salary sacrifice with car (no employee contributions): Taxable income $47,647, income tax $5,082, Medicare $953, net disposable income $41,612 (slightly lower because the car benefit is fully taxed via FBT).
• Salary sacrifice with car and $7,000 employee contribution: Taxable income $60,855, income tax $9,045, Medicare $1,217, employee contribution $7,000, net disposable income $43,593 – an increase of $1,681 over the no-sacrifice scenario.

This illustrates that salary sacrifice can boost your disposable income when structured with employee contributions. However, the outcome varies based on your specific situation. Use our Take-home pay calculator to estimate your own figures.

Salary Sacrifice and the Medicare Levy

The Medicare levy is 2% of your taxable income for most taxpayers. If your taxable income is below certain thresholds, you may pay a reduced rate or none. For 2026–27, the single-person thresholds are $28,011 (lower) and $35,013 (upper). If your taxable income falls between these, you pay a shade rate of 10 cents per dollar over the lower threshold. Salary sacrifice reduces your taxable income, which could move you into a lower Medicare levy bracket. However, if you have a reportable fringe benefits amount (e.g., from a car), it may affect your Medicare levy surcharge if you do not have private health insurance.

How Salary Sacrifice Compares to National Benchmarks

The national minimum wage from 1 July 2026 is $26.44 per hour and $1,004.90 per week (Fair Work Ombudsman). The average full-time adult ordinary time earnings are $2,083.70 per week (ABS, May 2026). Salary sacrifice can be used by employees at any income level, but it is most beneficial for those in higher tax brackets because the tax savings are larger. For someone earning the minimum wage, salary sacrificing may not be worthwhile due to the low marginal tax rate and the potential for FBT costs. For someone earning the full-time average, salary sacrifice can significantly increase net disposable income, especially for benefits like super contributions or a novated lease. See our Benchmarks page for more comparisons.

Important Rules and Changes

To have an effective salary sacrifice arrangement, you must enter into it before you perform the work, have a written agreement with your employer, and not have access to the sacrificed salary. Expenses paid via direct debit from your pay are not salary sacrificed. From 1 April 2027, work-related items provided through salary sacrifice will no longer be exempt from FBT, so plan accordingly. Salary-sacrificed super contributions are always treated as employer contributions and are not subject to FBT.

Using the ATO's Example and Calculator

The ATO's example (shown above) uses the 2025–26 tax rates. For 2026–27, the resident tax rates are: 0% on the first $18,200, 15% on $18,201–$45,000, 30% on $45,001–$135,000, 37% on $135,001–$190,000, and 45% over $190,000 (plus 2% Medicare). You can use the Moneysmart income tax calculator to estimate your tax after salary sacrifice. Remember that salary sacrifice reduces your taxable income, so your marginal tax rate may drop.

Salary Sacrifice and Super

Salary sacrificing into super is a popular way to boost retirement savings while reducing tax. These contributions are in addition to the super guarantee (12% from 1 July 2026). Your employer must still pay the full super guarantee on your original salary. Salary-sacrificed super counts towards the concessional contributions cap ($30,000 for 2026–27). You cannot claim a tax deduction for these contributions because they are employer contributions. For more details, see our Super guide.