publishedAt: "2026-06-07" updatedAt: "2026-06-07" author: "Mahi Patil" readTime: 12

Salary Sacrifice in Australia: Complete Guide to How It Works, What You Save & the Traps (2026)

Updated for 2026-27: From 1 July 2026, the concessional contributions cap increases to $32,500 per year. All salary sacrifice into super examples in this guide reflect the new cap. See our companion guide: Salary Sacrifice Super 2026-27.

Salary sacrifice is one of the most effective legal tax strategies available to everyday Australian workers — and one of the most misunderstood.

At its core, it is straightforward: instead of receiving your full salary in cash and paying income tax on all of it, you redirect part of your pre-tax salary toward approved benefits. Because those benefits come out before tax is calculated, your taxable income drops — and so does your tax bill.

Done well, salary sacrifice can save you thousands of dollars a year. Done poorly — or without understanding the traps — it can reduce your home loan borrowing capacity, cause problems with your HECS debt, or result in an unexpected tax bill if you exceed contribution caps.

This guide covers everything: how salary sacrifice works, what you can sacrifice, how much you actually save at each income level, worked examples across different scenarios, the hidden risks, and whether it makes sense for your situation.

What Is Salary Sacrifice?

Salary sacrifice is a contractual arrangement where you elect to redirect part of your pre-tax salary to approved non-cash benefits. It is an arrangement offered through your employer that allows you to use pre-tax salary to pay for eligible expenses. Because those expenses are paid from your salary before PAYG tax is applied, it may reduce the amount of tax you pay.

You may also hear the term salary packaging — the two are used interchangeably in Australia. Salary packaging generally refers to the arrangement that can bundle multiple benefits together — for example, novated leases, work-related electronics, or certain living expenses. The tax treatment and potential savings don't change based on which term is used.

The arrangement requires a formal written agreement between you and your employer before the work is performed. You cannot salary sacrifice money you have already earned.

What Is the Best Salary Sacrifice Option in Australia?

Not all salary sacrifice arrangements deliver equal value. The benefit of any packaging arrangement depends on three variables: whether the benefit attracts FBT, your marginal tax rate, and what your employer is willing to offer. Here is how the main options stack up, ranked by tax effectiveness for most Australian employees.

1. Super Contributions — Best for Almost Everyone

Salary sacrificing into super is the most universally valuable packaging option available to Australian employees. It is available through virtually every employer, requires no third-party arrangement, and delivers a guaranteed tax saving at any income above $45,000.

The saving: contributions are taxed at 15% inside the super fund instead of your marginal rate. At $90,000 income (marginal rate 34.5%), every $1,000 sacrificed into super saves $195 in tax. At $130,000 (marginal rate 39%), the saving is $240 per $1,000. At $190,000 (marginal rate 47%), the saving is $320 per $1,000.

Annual concessional contributions cap (2026-27): $32,500, inclusive of employer SG contributions. At 12% SG, an employee on $90,000 has $10,800 in employer contributions, leaving $21,700 of cap available for salary sacrifice.

Catch-up contributions: If your total super balance is below $500,000 and you have unused concessional cap from the prior five financial years, you can carry those amounts forward and sacrifice more than $32,500 in a single year. This is a particularly powerful strategy for people who had lower incomes or career breaks in earlier years.

Bottom line: If you can only do one thing, sacrifice into super. The tax saving is guaranteed, the cap is generous enough for most employees, and the money grows in a concessionally taxed environment until retirement.

2. Electric Vehicle Novated Lease — Best for High Earners Who Need a Car

If you need a car, a novated lease on an eligible electric or plug-in hybrid vehicle (PHEV) is the single most tax-effective non-super packaging option available. Eligible EVs are completely FBT-exempt up to the luxury car tax threshold ($91,387 for 2025-26), meaning all costs — lease payments, registration, insurance, fuel or charging, tyres, servicing — are paid from pre-tax salary with no FBT liability.

The effective saving at 47% marginal rate: every $10,000 in annual car running costs that you pay from pre-tax salary instead of after-tax income saves $4,700 in income tax. On a three-year lease with $25,000 in annual running costs, the total tax saving is approximately $35,250 — well above the lease administration fees.

Catch: It requires employer participation, you bear the residual value risk at lease end, and you remain liable for lease payments if you leave your employer. The EV exemption is the most valuable packaging benefit currently available outside of NFP salary caps — but it requires planning and the right vehicle choice.

Petrol/diesel novated lease: A standard novated lease on a petrol or diesel vehicle still provides a tax advantage through the employee contribution method (ECM), but the FBT treatment is more complex and the saving is smaller than for EVs. Worth running the numbers with your packaging provider before committing.

3. Living Expenses (NFP/Health Employees Only) — Highest Dollar Value

If you work for a public benevolent institution, registered charity, public hospital, or similar FBT-exempt employer, salary packaging living expenses — rent, mortgage, utilities, groceries via a packaging card — delivers the largest absolute dollar tax saving available to any Australian employee.

The FBT-exempt cap is $15,900 for NFP/PBI employees and $9,010 for public hospital employees. At a 34.5% marginal rate, packaging the full $15,900 saves approximately $5,486 per year in income tax. At 39%, the saving is $6,201. This is a tax saving on top of — not instead of — any super salary sacrifice.

If you are eligible for living expenses packaging and are not using it, you are leaving several thousand dollars in tax savings on the table each year. This is the most impactful single thing an NFP or health employee can do with their pay structure.

4. Work-Related Portable Electronic Devices — Quick Win for Everyone

One laptop and one mobile phone per FBT year, if used primarily for work, can be salary sacrificed with no FBT applying. The saving depends on the device value and your marginal rate. A $2,500 laptop at a 39% marginal rate saves approximately $975 compared to buying it from after-tax income.

This is not a strategy for large amounts, but it is a genuine tax saving that requires little setup and is available to almost all employees through their employer. If you need a work laptop or phone and your employer offers packaging, always run it through salary sacrifice rather than buying it yourself.

5. Income Protection Insurance — Worth Checking

Premiums for income protection insurance can be salary sacrificed with some employers, paying them from pre-tax salary and reducing taxable income. The tax saving is the same as any other salary sacrifice — the difference between your marginal rate and the way the benefit is taxed (income protection premiums are generally FBT-exempt when sacrificed through an employer).

Important caveat: Income protection premiums are normally also tax-deductible when paid personally. If you pay them yourself and claim the deduction in your tax return, the after-tax effect is essentially the same as salary sacrificing them. The salary sacrifice route is slightly more administratively convenient but not dramatically more valuable than self-payment and personal deduction.

What NOT to Sacrifice: Items Where FBT Negates the Benefit

General living expenses, personal holidays, gym memberships, and most personal items attract the full 47% FBT rate when provided through salary sacrifice by a standard employer. Because FBT is charged at 47% (designed to match the top marginal rate), there is no tax saving from sacrificing these items as a private sector employee — the employer's FBT cost equals or exceeds the income tax saving. Only FBT-exempt employers (public hospitals, NFPs) can offer living expenses packaging tax-effectively.

How Salary Sacrifice Works: The Mechanics

Here is the step-by-step flow:

You agree with your employer to redirect a portion of your pre-tax salary to an approved benefit — most commonly superannuation or a novated car lease.
Your employer pays that amount directly to the benefit provider (super fund, leasing company, etc.) before calculating your PAYG tax.
Your taxable income is reduced by the amount sacrificed, meaning less income tax is withheld from your pay.
The benefit itself may attract Fringe Benefits Tax (FBT), which is the employer's liability — not yours. For some benefits (like additional super), FBT does not apply at all.

The appeal of salary sacrifice is that some benefits can be funded from pre-tax income or taxed concessionally, rather than from your after-tax take-home pay. The actual tax saving depends on the type of benefit, whether it attracts Fringe Benefits Tax (FBT), and your individual circumstances.

What Can You Salary Sacrifice in Australia?

What you can salary sacrifice depends on your employer type and what your employer is willing to offer. The ATO rules set the outer boundary — they determine which benefits are FBT-exempt, concessionally taxed, or fully FBT-taxable. Your employer determines what they will administer within those rules.

Available to All Employees (Subject to Employer Participation)

Benefit	FBT treatment	Tax effectiveness
Additional superannuation contributions	No FBT — taxed at 15% in the fund	High — available to all, saves marginal rate minus 15%
Novated lease — eligible EV or PHEV	FBT-exempt (up to LCT threshold)	Very high for car owners
Novated lease — standard petrol/diesel vehicle	FBT applies — offset via employee contribution method	Moderate
Portable electronic devices (1 laptop + 1 phone per year, primarily for work)	FBT-exempt	Moderate — one-off saving per device
Tools of trade (primarily for work)	FBT-exempt	Moderate
Protective clothing and work uniforms	FBT-exempt	Minor
Professional memberships and subscriptions (work-related)	FBT-exempt	Minor
Self-education expenses (work-related study)	FBT-exempt	Moderate depending on course costs
Income protection insurance	Generally FBT-exempt	Moderate (also deductible personally)

Available Only to FBT-Exempt Employer Employees

Benefit	Who qualifies	Annual cap	Tax effectiveness
General living expenses (rent, mortgage, bills, groceries)	PBI/NFP employees	$15,900	Very high
General living expenses	Public hospital / ambulance / health promotion charity employees	$9,010	High
Meal entertainment and venue hire	Both categories above	$2,650 (additional)	High
Remote area housing assistance	Regional/remote employees of eligible employers	ATO concession rates	High for regional workers

Cannot Be Salary Sacrificed Tax-Effectively by Private Sector Employees

Rent or mortgage payments — FBT at 47% eliminates any tax saving
Grocery spending — same
Personal holidays and travel — same
Gym memberships — same
Private school fees — same
Clothing (non-work) — same The above can technically be packaged but your employer would pay FBT at 47%, which either eliminates the tax benefit or is passed back to you as a cost. These are only worth packaging for FBT-exempt employers.

Can Anyone Salary Sacrifice?

Almost anyone who is an employee in Australia can salary sacrifice, provided their employer is willing to offer it. There is no legislative requirement for employers to offer salary packaging. Many large employers do; many small businesses do not.

You cannot salary sacrifice if:

Your employer does not have a salary packaging arrangement in place and declines to set one up
The sacrifice would reduce your take-home pay below the minimum wage (you cannot sacrifice below award or NMW minimums)
You are a contractor (not an employee) — contractors receive fees, not salary, and cannot salary sacrifice If your employer does not currently offer salary packaging, you can ask HR or payroll to set one up. For super salary sacrifice specifically, most payroll systems can accommodate this with minimal setup — it is the most universally available packaging option.

How Much Tax Does Salary Sacrifice Actually Save?

The answer depends on your income bracket. The value of salary sacrifice depends almost entirely on the gap between your marginal tax rate and the 15% super contributions tax. Here is a rough framework by 2025–26 tax bracket:

$18,201–$45,000 (16% marginal rate) — minimal benefit. The 1 percentage point saving rarely justifies locking money in super.
$45,001–$135,000 (30% marginal rate) — solid benefit.
$135,001–$190,000 (37% marginal rate) — strong benefit, 22 cents saved per dollar sacrificed.
Above $190,000 (45% marginal rate) — maximum benefit, 30 cents saved per dollar, but Division 293 tax may partially claw this back.

Here is the maths made concrete across income levels, using a $10,000 salary sacrifice into super:

Income	Marginal Rate	Tax on $10,000 without sacrifice	Super tax (15%)	Tax saving
$60,000	30%	$3,000	$1,500	$1,500
$90,000	30%	$3,000	$1,500	$1,500
$120,000	30%	$3,000	$1,500	$1,500
$150,000	37%	$3,700	$1,500	$2,200
$200,000	45%	$4,500	$1,500	$3,000

Note on Division 293: High income earners (above $250,000) pay an additional 15% tax on concessional contributions via Division 293, effectively reducing the super tax rate advantage. The saving is still meaningful, but smaller.

Worked Examples

Example 1 — Salary Sacrifice Super (Office Worker, $90,000)

Emma earns $90,000 per year and wants to salary sacrifice $10,000 into super. Her employer's SG contribution is $10,800 (12% of salary), so her total concessional contributions would be $20,800 — comfortably within the $32,500 cap.

Without salary sacrifice: Taxable income: $90,000. With salary sacrifice of $10,000 into super: Taxable income reduced to $80,000.

	Without Sacrifice	With Sacrifice
Gross salary	$90,000	$90,000
Salary sacrificed	$0	$10,000
Taxable income	$90,000	$80,000
Income tax + Medicare	~$21,717	~$18,717
Take-home pay	~$68,283	~$61,283
Super balance gain	$10,800 (SG only)	$20,800 (SG + sacrifice)
Tax saved		~$3,000

Emma's take-home drops by $7,000 (the after-tax cost of the sacrifice), but $10,000 lands in her super. The $3,000 tax saving is the net benefit — money she keeps that she would otherwise have paid to the ATO.

Example 2 — Novated Lease on an Electric Vehicle

Jake earns $120,000 and wants to drive a $60,000 electric vehicle. He sets up a novated lease with annual costs of $18,000 (lease payments plus running costs).

Because the EV is below the $91,387 FBT-exempt threshold and the lease qualifies, no FBT applies.

	Buying Outright (After Tax)	Novated Lease
Pre-tax salary needed	~$25,714 (at 30% tax)	$18,000
Tax paid	~$7,714	$0 on the sacrificed amount
Annual saving		~$7,714

Over a typical 3-year lease term, the tax saving on an FBT-exempt EV at Jake's income level could exceed $20,000 — a meaningful financial advantage compared to financing the same vehicle personally.

Example 3 — Healthcare Worker Packaging Living Expenses

Sarah is a registered nurse at a public hospital earning $85,000 per year. Her employer allows her to package living expenses up to the $9,010 FBT-exempt cap.

Sarah packages $9,010 of her rent and daily expenses pre-tax. At her 30% marginal rate:

	Without Packaging	With Packaging
Taxable income	$85,000	$75,990
Income tax saving	—	~$2,703
Net benefit		~$2,703 per year

This is on top of any salary sacrifice she might also make to super. A nurse maximising both the living expenses cap and the concessional super cap can achieve total tax savings well north of $4,000 per year.

Example 4 — Charity / Not-for-Profit Worker

Marcus works for a Public Benevolent Institution (PBI), earning $70,000. Eligible PBI employees can package up to $15,900 per FBT year in living expenses. Marcus packages $15,900 toward his rent and living costs. Because his employer is FBT-exempt up to this threshold, those expenses are effectively paid from pre-tax income, meaningfully increasing his net take-home pay compared to a standard employer arrangement. A separate meal entertainment cap of approximately $2,650 may also be available.

At Marcus's income, the $15,900 packaging reduces his taxable income to around $54,100, saving approximately $4,770 in income tax — equivalent to a pay rise of that amount at no cost to his employer.

The Concessional Contributions Cap: The Most Important Limit

The biggest risk for those salary sacrificing into super is exceeding the $32,500 concessional contributions cap for 2026–27.

This cap includes all concessional contributions — your employer's SG contributions plus your salary sacrifice. Many people only think about their salary sacrifice amount and forget their employer is already contributing.

Example of getting it wrong:

Tom earns $100,000. His employer contributes $12,000 (12% SG). Tom sets up a salary sacrifice of $25,000 per year, thinking he is well under the $32,500 cap.

Total concessional contributions: $12,000 + $25,000 = $37,000 — $4,500 over the cap.

The excess $7,000 is taxed at Tom's marginal rate (less the 15% already paid inside the fund), plus an excess concessional contributions charge. What seemed like a tax saving becomes a tax bill.

Always calculate your total concessional contributions before setting up or increasing a salary sacrifice arrangement. Use our income tax calculator to model your position.

Carry-Forward Concessional Contributions: A Deadline You Cannot Miss

If your total super balance was below $500,000 at 30 June of the previous financial year, you can carry forward any unused concessional cap space from the previous five years and use it all in a single year, on top of the standard $32,500 cap. Note that unused cap space from the 2020–21 financial year (when the cap was $25,000) expired on 30 June 2026 — that window has now closed.

This is still a valuable strategy for anyone who had years with lower income or career breaks since 2021–22. Check your carry-forward balance in ATO online services via myGov.

The Hidden Risks and Traps

Salary sacrifice is not free money. There are several important downsides that are frequently overlooked.

1. Reduced Home Loan Borrowing Capacity

Salary sacrifice reduces your take-home pay. If you're applying for a mortgage, lenders assess your take-home pay — a large sacrifice could reduce your borrowing capacity.

By reducing your official taxable income, your reportable income may look lower. This could affect some of your other goals — like loan borrowing capacity, HECS/HELP repayments, child support, or other income-tested benefits.

If you are planning to apply for a home loan in the next 12–24 months, consider whether a large salary sacrifice is strategically smart right now. Use our mortgage calculator to model how a reduction in take-home pay affects what you can borrow.

2. It Does NOT Reduce Your HECS Repayments

Many Australians with a HECS-HELP debt wonder whether salary sacrificing into super can reduce their student loan repayments. It's a logical question — if salary sacrifice lowers your taxable income, shouldn't it also lower your HECS repayment? In most cases, salary sacrifice does NOT reduce HECS repayments. The ATO uses a special measure called repayment income — not taxable income — to calculate your HECS obligation. Repayment income adds back reportable super contributions (including salary sacrifice), so the amount you sacrifice is effectively included in the calculation.

This is one of the most common misconceptions about salary sacrifice. You cannot salary sacrifice your way out of a HECS repayment.

3. Novated Lease Risk When Changing Jobs

Novated leases become complicated if you change jobs. Salary sacrifice works best with stable employment. If you leave your job, you're still liable for the lease. The car becomes your personal responsibility. Always have a plan before committing to a 3–5 year lease.

4. Super Is Locked Away

Money salary sacrificed into super cannot be accessed until you reach your preservation age (currently 60). If you are in your 30s or 40s and anticipating a major expense — a home deposit, a career change, starting a business — sacrificing heavily into super reduces your accessible savings today in exchange for a future tax benefit. Whether that trade-off makes sense depends entirely on your personal financial position.

5. Low-Income Earners Gain Little

For those earning $18,201–$45,000 at a 16% marginal rate — minimal benefit. The 1 percentage point saving between the marginal rate and the 15% super tax rate rarely justifies locking money in super.

However, low-income earners may still benefit from salary sacrificing into super if they qualify for the Low Income Superannuation Tax Offset (LISTO) — a government refund of up to $500 per year to offset the 15% contributions tax paid by low earners.

6. Medicare Levy Surcharge Interactions

Australians without adequate private hospital cover who earn above $93,000 (singles) pay the Medicare Levy Surcharge of 1–1.5% on top of the standard Medicare levy. Salary sacrifice that reduces your taxable income below this threshold eliminates the surcharge — a saving of up to $1,395 per year before any other tax benefit.

This is a powerful secondary benefit for those hovering just above the MLS threshold. A relatively small salary sacrifice can tip you below the surcharge threshold and deliver significant extra savings — but only if you do not have eligible private hospital cover already.

Is Salary Sacrifice Worth It? A Quick Decision Framework

Your situation	Verdict
Earning above $45,000 and not near a home loan application	Yes — salary sacrifice super is strongly worth considering
Earning above $93,000 without private hospital cover	Yes — and model the MLS threshold effect first
Working in healthcare, charity, or not-for-profit	Yes — the living expenses cap makes this especially powerful
Planning to buy a home in the next 12–24 months	Caution — model borrowing capacity impact first
Have a HECS debt and hoping to reduce repayments	No — sacrifice will not help with HECS repayments
Earning under $45,000	Minimal benefit for super; consider LISTO first
Considering a novated lease on an EV under $91,387	Yes — the FBT exemption makes this highly attractive
Considering changing jobs soon	Caution — do not start a novated lease before job security is confirmed

How to Set Up Salary Sacrifice: Step by Step

Step 1: Check What Your Employer Offers

Contact your HR team or payroll department and ask: does the company have a salary packaging arrangement? Which benefits are available? Is there a third-party packaging provider?

Some employers have comprehensive packaging programs (often administered by providers like RemServ, Smart Salary, or Paywise for government and health employees). Others — particularly small businesses — may only accommodate super salary sacrifice through payroll, with no formal packaging provider.

If your employer has no arrangement in place and you want to sacrifice into super, ask HR to set it up. For super, the process is straightforward: your employer simply directs the sacrificed amount to your nominated super fund each pay cycle instead of paying it to you as salary.

Step 2: Confirm the Arrangement Before the Salary Is Earned

This is the critical timing requirement. Salary sacrifice must be agreed before you earn the salary being packaged. You cannot retrospectively sacrifice salary you have already been paid — the ATO does not permit this.

In practice: if you want to start packaging from 1 July (the start of the financial year), have the agreement signed and in place with your employer before 1 July. If you want to start mid-year, the arrangement applies to salary earned from the date it is in force — not from earlier in the year.

Step 3: Sign a Written Salary Sacrifice Agreement

The arrangement must be in writing. A valid salary sacrifice agreement should specify:

The amount or percentage of salary to be sacrificed each pay period
The benefit to be provided in exchange (e.g. super contributions, novated lease)
The start date
The period of the arrangement (open-ended or fixed term)
What happens if you leave employment (for novated leases, particularly important) Your employer or packaging provider will usually provide a standard agreement template. Read it before signing, particularly the exit clauses for any multi-year arrangement like a novated lease.

Step 4: Confirm Super Fund Details (for Super Sacrifice)

If you are salary sacrificing into super, confirm with your employer that the contributions will be directed to your chosen fund under your existing member number. Contributions should appear in your super fund account within 28 days of the end of each SG quarter (or sooner for monthly payroll).

Check your super fund's app or online portal after the first pay cycle to confirm contributions are being received in the correct amount.

Step 5: Monitor Your Concessional Contributions Cap

Keep track of your total concessional contributions for the financial year — your employer SG plus your salary sacrifice total. The combined amount must not exceed $32,500 (2026-27). Check your ATO myGov account or super fund statement each quarter. If you are close to the cap, reduce or pause salary sacrifice contributions before year end.

Exceeding the cap means the excess is included in your assessable income and taxed at your marginal rate, with an excess concessional contributions charge. The tax outcome is similar to simply receiving the money as salary — you do not lose the money, but you lose the tax benefit on the excess portion.

Step 6: Check the RFBA Impact on Your Income Statement

Most salary sacrifice arrangements (except super) generate a Reportable Fringe Benefits Amount (RFBA) on your income statement. This is not extra income — you pay no additional income tax on it — but it does increase your adjusted taxable income for:

HECS/HELP repayment income (you may repay more HECS than expected)
Medicare Levy Surcharge income test
Some Centrelink payment income tests
Child support assessments Check the RFBA impact before committing to a large non-super packaging arrangement. If you are close to a HECS repayment threshold, the RFBA could push your repayment income above it and increase your HECS repayment obligation for the year.

Frequently Asked Questions

What is the difference between salary sacrifice and salary packaging?

They are the same thing. Salary sacrifice refers to the decision to redirect pre-tax salary toward a benefit. Salary packaging is the administrative arrangement — often bundling multiple benefits — that puts that decision into action. The tax treatment is identical under both terms.

How much can I salary sacrifice in Australia?

For super, the concessional contributions cap is $32,500 per year in 2026–27, which includes your employer's SG contributions. For novated leases, there is no statutory cap, but your arrangement must align with your employer's policies. For charity and healthcare workers, living expenses caps of $15,900 and $9,010 respectively apply.

Does salary sacrifice reduce my tax?

Yes, for most workers earning above $45,000. It reduces your taxable income, meaning less PAYG tax is withheld each pay cycle. For super sacrifice, the money in the fund is taxed at 15% rather than your marginal rate — the difference is your saving.

Does salary sacrifice reduce HECS repayments?

No. The ATO uses repayment income — not taxable income — to calculate HECS obligations. Salary sacrificed amounts are added back as reportable employer super contributions, so they do not reduce what you owe on your student debt.

Will salary sacrifice affect my home loan application?

Potentially yes. Your take-home pay is lower, which can reduce your borrowing capacity in lenders' serviceability calculations. If you are applying for a home loan soon, model the impact before increasing your salary sacrifice. Our mortgage calculator can help you understand the numbers.

What is the FBT-exempt cap for healthcare and charity workers?

Healthcare workers at eligible employers (public hospitals, some private hospitals) can package up to $9,010 in living expenses per FBT year. Employees of Public Benevolent Institutions (charities) can package up to $15,900. Both groups may also access a $2,650 cap for meal entertainment.

Is an electric vehicle salary sacrifice worth it?

For employees earning above $60,000 whose employer offers novated leasing and who genuinely need a car, an FBT-exempt EV under $91,387 (the 2026–27 luxury car tax threshold) is one of the most tax-effective salary sacrifice arrangements available. The combination of no FBT, no GST on the vehicle, and pre-tax lease payments typically delivers 25–35% cost savings versus buying the same car personally.

What happens if I exceed the concessional contributions cap?

The excess is included in your taxable income and taxed at your marginal rate, minus a 15% offset for the tax already paid inside the fund. An excess concessional contributions charge also applies. It is important to track your total concessional contributions — employer SG plus salary sacrifice — throughout the year.

Can I salary sacrifice if I am casual or part-time?

Yes, provided your employer offers salary sacrifice arrangements. The same rules apply, but your total salary must remain above the minimum wage or your award rate after the sacrifice is deducted.

When should I review my salary sacrifice arrangement?

At least annually — and whenever your income changes significantly, you are considering a home loan application, your employer changes, or there are changes to super caps or FBT rules. The ATO reviews concessional caps and various thresholds periodically.

What is the best salary sacrifice option in Australia?

For most employees, salary sacrificing into super is the best option — it is universally available (any employer can accommodate it), delivers a guaranteed tax saving equal to the difference between your marginal rate and the 15% super contributions tax, and the money grows in a concessionally taxed environment. For employees with an eligible EV who need a car, an EV novated lease is the most tax-effective non-super option (FBT-exempt up to the luxury car tax threshold). For NFP and public hospital employees, packaging living expenses (rent, mortgage, bills) up to the FBT-exempt cap ($15,900 or $9,010) is an additional high-value option on top of super sacrifice.

What can I salary sacrifice in Australia?

The most common items you can salary sacrifice are additional super contributions, a novated car lease, and work-related portable electronic devices (one laptop and one phone per FBT year). Employees of public hospitals and registered charities (NFPs) can also package living expenses — rent, mortgage repayments, and everyday bills — up to an FBT-exempt annual cap. Private sector employees cannot package living expenses tax-effectively. The full list of available benefits depends on your employer type and what your employer is willing to administer.

Can anyone do salary sacrifice in Australia?

Any employee can salary sacrifice provided their employer is willing to offer it. There is no legal requirement for employers to provide packaging arrangements, but most medium and large employers will at least accommodate super salary sacrifice through payroll. You cannot salary sacrifice if your employer declines, if it would reduce your pay below the relevant minimum wage, or if you are a contractor rather than an employee. Sole traders cannot salary sacrifice.

How does salary sacrifice work in Australia?

You and your employer agree in writing that a portion of your pre-tax salary will be paid as a benefit instead of cash. The agreement must be in place before you earn the salary being packaged. The sacrificed amount is not included in your taxable income — instead, the benefit is either FBT-exempt (such as super contributions or an eligible EV lease), FBT-concessional, or subject to FBT at 47% (which eliminates the tax advantage for most personal benefits). The tax saving comes from taking remuneration in a form that is taxed at a lower rate than your marginal income tax rate.

How do I set up salary sacrifice with my employer?

Contact your HR or payroll team and ask whether the company has a salary packaging arrangement. For super salary sacrifice, most employers can set this up directly through payroll — you nominate the amount and they direct it to your super fund each pay cycle. For other benefits (novated leases, packaging cards), your employer may use a third-party provider. You must sign a written salary sacrifice agreement before the arrangement starts, specifying the benefit, amount, and start date. The arrangement applies only to salary earned after it is in force — it cannot be applied retrospectively.

Does salary sacrifice affect my HECS repayment?

Super salary sacrifice does not reduce your HECS repayment income — the ATO adds reportable employer super contributions back to your income when calculating your HECS repayment income, so your repayment obligation is based on your original salary. Non-super salary sacrifice arrangements (novated leases, living expenses packaging) generate a Reportable Fringe Benefits Amount (RFBA) that is included in your HECS repayment income — this can push your repayment income above a threshold and increase your HECS repayment. Factor this in before setting up a large non-super packaging arrangement if you have a HECS debt.

What is the salary sacrifice limit in Australia?

For super contributions, the limit is $32,500 per year (2026-27) total concessional contributions — your employer's SG plus your salary sacrifice combined. For living expenses (NFP employees), the FBT-exempt cap is $15,900 per FBT year. For public hospital employees, the cap is $9,010. For meal entertainment, $2,650 per FBT year (for eligible employer types). For EV novated leases, the luxury car tax threshold is $91,387 (2025-26) — vehicles under this value are FBT-exempt. For other benefits, there is no hard dollar cap, but FBT applies to benefits above FBT-exempt thresholds.

Final Word

Salary sacrifice is one of the few tax strategies genuinely available to ordinary Australian workers — not just high earners or business owners. For anyone earning above $45,000, particularly those with employer-paid superannuation and access to novated leasing, it is worth modelling your position carefully.

The biggest gains come from:

Super sacrifice at higher income brackets — every dollar sacrificed saves the gap between your marginal rate and 15%
EV novated leases — the FBT exemption makes this the most immediate and measurable concession for those who need a car
Healthcare and charity worker living expenses packaging — the FBT-exempt caps for these employees are genuinely generous and underused

The biggest risks come from exceeding contribution caps, not accounting for borrowing capacity impacts before a home loan application, and entering a novated lease without stable employment.

Use our income and tax calculator to model what salary sacrifice would do to your take-home pay and annual tax bill before making any changes — and speak to a licensed financial adviser or accountant if you are considering significant changes to your salary packaging arrangements.

This article is general information only and does not constitute financial or tax advice. Salary sacrifice arrangements and their tax treatment depend on your individual circumstances, award coverage, and employer policies. Always verify current caps and thresholds with the ATO at ato.gov.au and seek advice from a qualified professional before making decisions.