What Is Salary Sacrifice in Australia? How It Affects Your Take-Home Pay
Salary sacrifice reduces your taxable income, so your take-home pay depends on the arrangement; there is no single figure.
What Is Salary Sacrifice in Australia?
Salary sacrifice – also called salary packaging – is an arrangement where you and your employer agree to reduce your pre-tax salary in exchange for benefits of similar value. The Australian Taxation Office explains that this lowers your taxable income, so you may pay less tax . Understanding what is salary sacrifice in Australia is key to knowing how much actually reaches your bank account.
How Salary Sacrifice Works
You must enter the arrangement before you perform the work. The agreement must be in place, and you cannot access the sacrificed salary later. Common benefits include cars, super contributions, laptops, and childcare. Your employer may pay fringe benefits tax (FBT) on most packaged benefits, which can limit what is offered. Moneysmart notes that FBT is calculated at the highest marginal tax rate, so the tax-effectiveness depends on your situation .
Impact on Your Take-Home Pay
Your take-home pay is what remains after income tax and the Medicare levy are deducted. When you salary sacrifice, your taxable income drops, so less tax is withheld. However, you also give up cash salary. The net effect on your bank account depends on the benefit and any employee contributions you make. For example, the ATO illustrates a $65,000 salary where salary sacrificing a car without employee contributions leaves a net disposable income similar to not packaging, but with employee contributions the net disposable income can be higher. Always check the numbers for your own situation.
Tax and Medicare Levy
For the 2026–27 tax year, the tax rates start at nil for the first $18,200, then 15c per dollar up to $45,000, and 30c per dollar up to $135,000 . The Medicare levy is 2% of taxable income, with reduced rates for low incomes. The latest published single-person thresholds are $28,011 and $35,013 – if your taxable income is below $28,011 you pay no Medicare levy; between $28,011 and $35,013 you pay a shade rate. Full-time salaries typically pay the full 2%.
Super and Salary Sacrifice
Salary sacrificed super contributions are not fringe benefits if paid to a complying super fund. They are taxed at 15% inside super, which is often lower than your marginal rate. Your employer must still pay the super guarantee (12% from 1 July 2026) on your original salary, so salary sacrifice super is on top of that. Remember the concessional contributions cap – if you exceed $32,500 in total (including employer contributions), you may pay extra tax.
Considerations and Pitfalls
Salary sacrifice can affect the Medicare levy surcharge, study loan repayments, child support, and some government benefits. You cannot claim a tax deduction for expenses your employer pays under the arrangement. Also, from 1 April 2027, work-related items provided through salary sacrifice will no longer be FBT-exempt. Always review your total package, not just the headline salary.
For more on how your pay is calculated, see our Take-home pay guide and Salary packaging page.
Questions
Does salary sacrifice reduce my taxable income?
Yes. When you salary sacrifice, you agree to receive less pre-tax salary in exchange for benefits like a car or super. Your taxable income falls, so you pay less income tax and Medicare levy. However, the benefit itself may be subject to fringe benefits tax (FBT) paid by your employer, and the reportable fringe benefits amount can affect your government entitlements.
How does salary sacrifice affect my super?
Salary sacrificed super contributions are treated as employer contributions and are taxed at 15% in your super fund, not as fringe benefits. They count towards your concessional contributions cap ($32,500 for 2026–27). Your employer must still pay the super guarantee on your original salary, so salary sacrifice super is additional to that.
What is the difference between salary sacrifice and salary packaging?
They are the same thing. The Australian Taxation Office uses 'salary sacrificing' and Moneysmart uses 'salary packaging'. Both refer to an arrangement where you and your employer agree to exchange part of your pre-tax salary for benefits such as a car, laptop, or extra super.