What Is a Salary Sacrifice and How It Affects Your Take-Home Pay
Pay varies depending on the salary sacrifice arrangement, your income level, and the benefits chosen; no single figure applies.
What Is a Salary Sacrifice?
A salary sacrifice (also called salary packaging or total remuneration packaging) is an agreement between you and your employer to exchange part of your pre-tax salary for a benefit of similar value. The Australian Taxation Office explains that this reduces your taxable income, meaning you pay less income tax and Medicare levy. Common benefits include a car, laptop, school fees, or additional super contributions.
Because the sacrificed amount is not paid to you as cash, your take-home pay decreases. However, the tax saved can make the arrangement worthwhile, especially if you are on a middle to high income where your marginal tax rate is higher.
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 are deducted. When you salary sacrifice, your employer first reduces your gross salary by the sacrificed amount, then withholds tax on the lower taxable income. The Medicare levy (2% for most full-time earners) is also calculated on the reduced figure.
Consider the ATO’s example for Sam earning $65,000 in 2025–26:
- No salary sacrifice: taxable income $65,000, tax $10,288, Medicare $1,300, car expenses $11,500 → net disposable income $41,912.
- Salary sacrifice car ($17,353) without employee contributions: taxable income $47,647, tax $5,082, Medicare $953, no car expenses → net disposable income $41,612.
- Salary sacrifice car ($4,145) with $7,000 employee contributions: taxable income $60,855, tax $9,045, Medicare $1,217, employee contribution $7,000 → net disposable income $43,593.
Notice that the third scenario gives the highest net disposable income because the employee contribution reduces the fringe benefits tax (FBT) your employer pays, making the arrangement more tax-effective for you.
Comparing Job Offers Using Take-Home Pay
When evaluating two job offers, one with salary packaging and one without, you need to calculate the amount that will actually land in your account. Start with the gross annual salary, subtract any salary sacrifice amount, then apply the 2026–27 resident tax rates and the low income tax offset (LITO). Deduct the 2% Medicare levy (full rate if your taxable income exceeds $35,013; otherwise use the shading rules between $28,011 and $35,013). Finally, subtract any employee contributions you must make and any ongoing costs you would otherwise pay (e.g., car expenses).
Use the Take-home pay calculator on this site to compare scenarios. Also check the Salary packaging guide for more details on FBT and exempt benefits.
Important Considerations
- Fringe benefits tax (FBT): Most packaged benefits trigger FBT for your employer, which may limit what they offer or require you to make employee contributions.
- Super guarantee: Your employer must still pay the 12% super guarantee on your original salary (not the sacrificed amount). Salary sacrifice super contributions are additional.
- Government benefits: Salary sacrifice can affect the Medicare levy surcharge, child support, and some tax offsets. The ATO warns that reportable fringe benefits may appear on your income statement.
- Effective arrangement: You must agree before you earn the income, and you cannot access the sacrificed cash. Direct debits from your pay are not salary sacrifice.
Questions
Does salary sacrifice reduce my take-home pay?
Yes, salary sacrifice reduces your taxable income, which lowers the income tax and Medicare levy withheld from your pay. However, the sacrificed amount is not paid to you as cash; instead, it goes toward the agreed benefit (e.g., a car or super). Your net disposable income may increase if the tax saved outweighs the cost of the benefit, as shown in the ATO example where Sam’s net disposable income rose from $41,912 to $43,593 with employee contributions.
Can I salary sacrifice super contributions?
Yes, you can arrange with your employer to sacrifice part of your pre-tax salary into your super fund. These are treated as employer contributions and are taxed at 15% inside super, which is often lower than your marginal tax rate. They do not reduce your employer’s super guarantee obligation. Be aware of the concessional contributions cap ($32,500 for 2026–27) and the Division 293 threshold ($250,000 combined income and contributions).
How do I compare two job offers when one includes salary packaging?
Focus on the net disposable income after tax, Medicare, and any employee contributions. Use the ATO’s table as a guide: calculate taxable income after the sacrifice, apply the 2026–27 tax rates and LITO, subtract the 2% Medicare levy (full rate if above $35,013), and then deduct any employee contributions or ongoing benefit costs. The offer with higher net cash in your bank account is generally better, but also consider the value of the benefit itself.