What Can I Salary Sacrifice? A Guide to Reducing Your Taxable Income

What Can I Salary Sacrifice? Understanding the Basics

When you ask “what can i salary sacrifice”, you’re really asking how to swap part of your pre-tax salary for benefits that your employer pays on your behalf. This arrangement, also called salary packaging, lowers your taxable income and can reduce the tax you pay. The Australian Taxation Office explains that you and your employer agree for you to receive less income before tax, and in return your employer pays for certain benefits of similar value .

Common Benefits You Can Include

There is no legal restriction on the types of benefits you can salary sacrifice, but what’s available depends on your employer. Common examples include:

• Cars – novated leases or fully maintained vehicles
• Super contributions – additional payments into your super fund
• Work-related items – laptops, phones, tools (note: from 1 April 2027 these will no longer be exempt from FBT)
• Childcare costs – if your employer offers this
• School fees – some employers allow this
• Health insurance – in limited cases

Your employer will usually have to pay fringe benefits tax (FBT) on the value of the benefit. To reduce their FBT bill, they may ask you to make an employee contribution from your after-tax income. The ATO provides a clear example: for a car benefit, if you make no employee contribution, the FBT taxable value is higher; if you contribute $7,000, the FBT drops significantly .

How Salary Sacrifice Affects Your Take-Home Pay

Your take-home pay is the amount that reaches your bank account after income tax and the Medicare levy. Salary sacrifice reduces your taxable income, so you pay less tax. But you also have less cash salary because part of it goes to the benefit. The net effect depends on your marginal tax rate and the type of benefit.

For the 2026–27 tax year, the 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% (full rate applies once your income exceeds the single upper threshold of $35,013; the lower threshold is $28,011).

If you earn the national minimum wage of $26.44 per hour ($1,004.90 per week, about $52,255 annually), your marginal rate is 30% plus 2% Medicare. Sacrificing a car benefit could reduce your taxable income and save you tax, but you still need to cover the car expenses. The ATO’s example shows that with employee contributions, net disposable income can actually increase .

Salary Sacrifice and Super

Salary sacrificing into super is one of the most popular options. These contributions are treated as employer contributions and are not subject to FBT. They are taxed at 15% inside your super fund, which is often lower than your marginal rate. However, they count towards the concessional contributions cap of $32,500 per year (including your employer’s super guarantee). Your employer must still pay the full super guarantee on your original salary .

Important Considerations

Before entering a salary sacrifice arrangement, check:

• Your employer’s policy – not all employers offer salary packaging
• FBT implications – your employer may pass on the FBT cost to you
• Impact on government benefits – reduced taxable income can affect child support, family tax benefit, and Medicare levy surcharge
• Medicare levy – if your income drops below the thresholds, you may pay a reduced levy
• HELP/HECS repayments – these are based on your taxable income, so salary sacrifice can lower your compulsory repayment

You cannot salary sacrifice after you have earned the income – the arrangement must be in place before you perform the work. Also, you cannot claim a tax deduction for expenses your employer pays under the arrangement.

Is Salary Sacrifice Right for You?

Salary sacrifice is generally more beneficial for people on middle to high incomes because their marginal tax rate is higher. For someone earning the national minimum wage, the savings may be smaller but still worthwhile for certain benefits like a car or super. For someone earning the full-time adult ordinary time earnings of $2,083.70 per week (about $108,352 annually), the tax savings are more significant.

Use our Salary packaging guide to explore your options, and check the Tax and Medicare page for the latest rates. Remember, salary sacrifice is not a tax avoidance strategy – it’s a legitimate way to structure your remuneration.

Final Thoughts

When you ask “what can i salary sacrifice”, the answer is: almost anything your employer agrees to, but the most common are cars, super, and work-related items. Always consider the full picture – tax savings, FBT, and your personal cash flow. The ATO and Moneysmart provide excellent resources to help you decide. If in doubt, seek professional tax advice tailored to your situation.