What is salary sacrifice?
Salary sacrifice (also called salary packaging) is an arrangement where you agree to receive less take-home pay in exchange for your employer providing you with benefits. The key advantage: those benefits are funded from your pre-tax salary, so you pay less income tax.
Your employer pays the benefit provider directly — whether that's your super fund, a car finance company, or a salary packaging administrator. It's not reimbursement — the arrangement must be set up before you earn the income.
Example: You earn $90,000. You salary sacrifice $10,000 into super. Your employer only reports $80,000 to the ATO as your income. You pay income tax on $80,000, not $90,000. The $10,000 goes into your super, taxed at just 15%.
How salary sacrifice saves tax
The tax saving comes from the difference between your marginal income tax rate and the tax rate on the benefit. For super, concessional contributions are taxed at 15% — significantly lower than most people's marginal rate.
| Income | Marginal Rate | Super Tax Rate | Saving per $1k sacrificed |
|---|---|---|---|
| $45k–$135k | 30% | 15% | $150 |
| $135k–$190k | 37% | 15% | $220 |
| $190k+ | 45% | 15% | $300 |
| $250k+ (Div 293) | 45% | 30% | $150 |
Types of salary sacrifice in Australia
Superannuation
Most popular- ·Concessional cap $30,000/year (includes employer SG at 12%)
- ·Contributions taxed at 15% instead of your marginal rate
- ·Division 293 tax applies if income + super > $250,000 (effective rate 30%)
- ·Great for building retirement savings tax-effectively
Novated Lease (Car)
EV FBT-exempt- ·Bundle car repayments + running costs into pre-tax salary
- ·Electric vehicles under $91,387 are FBT-exempt — massive saving
- ·Petrol/diesel cars attract FBT (~20% of car value per year)
- ·At lease end: pay residual, re-lease, or hand back
Healthcare / Not-For-Profit Packaging
Hospital staff- ·For employees of public hospitals, ambulances, and certain NFPs
- ·$9,010 FBT-exempt cap for living expenses (rent, mortgage, bills)
- ·Additional $2,650 for meal entertainment
- ·Effectively reduces taxable income by up to $11,660
Work Equipment (Laptop, Phone, Tools)
FBT-exempt- ·Laptops, tablets, phones, tools — FBT-exempt if primarily for work
- ·Must be used >50% for work purposes
- ·One laptop and one phone per FBT year (April–March)
- ·Effective 30–45% discount depending on marginal rate
Who benefits most?
High income earners ($90k+)
At 30%+ marginal rate, super sacrifice saves 15c per dollar. The higher your rate, the bigger the saving.
Healthcare / NFP workers
The $9,010 FBT-exempt living expense cap is unique to this sector — it's like a ~$3,000–$4,000 tax cut unavailable to most employees.
Anyone wanting a new EV
The FBT exemption for EVs under $91,387 makes novated leasing significantly cheaper than buying outright or taking a car loan.
Low income earners (<$37k)
LISTO already reduces super tax to near zero. And lower marginal rates mean smaller savings on other sacrifice types.
Short-term employees
Novated leases become complicated if you change jobs. Salary sacrifice works best with stable employment.
Near retirement (super access)
Sacrificing into super only makes sense if you can access it. Preservation age is 60 — locking money away has a real cost if you need it.
Salary sacrifice vs other tax strategies
| Strategy | How it reduces tax | Complexity | Best for |
|---|---|---|---|
| Salary sacrifice (super) | Reduces taxable income; super taxed at 15% | Low — set and forget | Most employees |
| Personal deductions | Reduces taxable income at marginal rate | Low — claim at tax time | Anyone with work expenses |
| Negative gearing | Investment losses offset income | High — needs property/shares | Investors |
| Salary sacrifice (novated) | Pre-tax car costs + FBT exemption for EVs | Medium — employer required | EV buyers, frequent drivers |
Common salary sacrifice mistakes
Exceeding the concessional cap
Sacrificing more than $30,000 total (including employer SG) means the excess is taxed at your marginal rate minus the 15% already paid — plus an excess concessional contributions charge.
Forgetting about cash flow
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.
HECS and super sacrifice
Sacrificing into super does NOT reduce your HECS repayment threshold. Your Repayment Income adds back reportable employer super contributions, so HECS is calculated on your original income.
Assuming your employer offers it
Salary sacrifice requires employer participation. Don't assume it's available — ask HR. Many smaller employers don't have packaging arrangements set up.
Novated lease and job changes
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.
Frequently asked questions
Does salary sacrifice reduce my HECS repayment?
Salary sacrifice into super does NOT reduce your HECS repayment threshold — your Repayment Income adds back reportable employer super contributions. However, FBT-exempt items (laptops, EVs) do reduce your repayment income.
Can my employer refuse salary sacrifice?
Yes. Salary sacrifice is voluntary for both parties. Your employer must agree to the arrangement. Larger employers and government agencies typically offer it; smaller businesses may not.
What is the concessional super contributions cap for 2025-26?
The concessional cap is $30,000. This includes employer SG (12%), any salary sacrifice, and personal deductible contributions. Exceeding the cap means excess is taxed at your marginal rate (less the 15% already paid).
What are FBT-exempt salary sacrifice items?
FBT-exempt items include: electric vehicles under $91,387, laptops and tablets (primarily for work), work-related tools and equipment, and healthcare benefits for eligible hospital/ambulance staff (up to $9,010/year).
What is the minimum income to benefit from salary sacrifice?
For super, you need a 30%+ marginal rate ($45,001+) to save 15c per dollar. Below that, LISTO offsets some tax, but the benefit is smaller. For FBT-exempt items like laptops and EVs, any income earner benefits.