What is salary sacrifice?
Salary sacrifice is an arrangement where you agree to take a lower cash salary and your employer provides part of your package in another form — such as super contributions or a novated lease — funded from pre-tax salary. Because the benefit is paid before income tax, it can reduce the tax you pay overall.
Definition
Salary sacrifice (salary packaging)
If you want the broader context for tax brackets, Medicare levy, and what counts as taxable income, keep the income tax guide nearby as you read this one.
Example: sacrificing $10,000 into super
How salary sacrifice saves tax
The saving comes from the spread between your marginal tax rate and the way the packaged benefit is taxed. For super, money that would have been taxed at your marginal rate (plus the 2% Medicare levy) goes into the fund at 15% instead.
| Taxable income | Marginal rate (incl. Medicare) | Super tax rate | Saving per $1,000 |
|---|---|---|---|
| $45,001 – $135,000 | 32% | 15% | $170 |
| $135,001 – $190,000 | 39% | 15% | $240 |
| $190,001+ | 47% | 15% | $320 |
| $250,001+ (Div 293) | 47% | 30% | $170 |
If you are weighing super against other long-term contribution strategies, the superannuation contributions guide goes deeper on caps, carry-forward rules, and when extra contributions stop being attractive.
What can you salary sacrifice?
The four most common things to salary sacrifice are super contributions, a car through a novated lease, capped living expenses for healthcare and not-for-profit workers, and FBT-exempt work equipment. What is actually available depends on your employer's packaging arrangements.
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 exceeds $250,000 (effective rate 30%)
- ·Often the simplest option if the goal is long-term retirement savings
Novated lease (car)
EV FBT-exempt- ·Bundle car repayments + running costs into pre-tax salary
- ·Eligible EVs under $91,387 offer the clearest benefit because they are exempt from FBT
- ·Petrol and diesel cars attract FBT under the statutory formula, which erodes part of the saving
- ·At lease end: pay the residual, re-lease, or hand back
Healthcare / not-for-profit packaging
Hospital & NFP staff- ·For employees of public hospitals, ambulance services, and certain NFPs
- ·$9,010 FBT-exempt cap for living expenses (rent, mortgage, bills)
- ·Additional $2,650 for meal entertainment
- ·The exact benefit depends on your employer's packaging rules
Work equipment (laptop, phone, tools)
FBT-exempt- ·Laptops, tablets, phones, tools — FBT-exempt if primarily for work
- ·Must be used more than 50% for work purposes
- ·One laptop and one phone per FBT year (April–March)
- ·The effective discount equals your marginal tax rate
How much can you salary sacrifice?
There is no single legal limit on salary sacrifice — each benefit type has its own ceiling. Super contributions are effectively capped at the $30,000 concessional cap (your employer's 12% SG counts towards it). NFP living-expense packaging is capped at $9,010 a year plus $2,650for meal entertainment. Novated leases and equipment have no statutory dollar cap, but your employer's policy — and your own cash-flow needs — set practical limits.
You still need to live on the rest
Is salary sacrifice worth it?
Salary sacrifice is usually worth it if your marginal tax rate is comfortably above the rate the benefit is taxed at — broadly, middle and higher earners packaging super or an FBT-exempt benefit. It is least attractive on low incomes, short job tenures, or when the money is needed before retirement.
✓ Middle and higher earners ($45,001+)
✓ Healthcare / NFP workers
✓ Anyone wanting a new EV
✗ Low income earners
✗ Short-term employees
✗ Anyone needing the cash before 60
Salary sacrifice vs other tax strategies
Salary sacrifice is one of four mainstream ways employees reduce tax — and the only one that works through payroll automatically once it is set up.
| 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 |
Disadvantages and common mistakes
The main disadvantages of salary sacrifice are reduced take-home pay, money locked in super until preservation age, lease obligations that survive a job change, and caps that bite when you breach them. Most problems trace back to one of these five mistakes:
Exceeding the concessional cap
Forgetting about cash flow
Expecting HECS relief
Assuming your employer offers it
Novated lease and job changes
Frequently asked questions
Does salary sacrifice reduce my HECS repayment?
No. Salary sacrifice into super reduces your taxable income, but the ATO adds reportable employer super contributions back when working out your HECS/HELP repayment income — so sacrificing into super does not reduce your compulsory repayment. FBT-exempt items like EVs via novated lease work the same way: the reportable fringe benefit amount is still included in your repayment income.
Can my employer refuse salary sacrifice?
Yes. Salary sacrifice is a voluntary arrangement that requires employer agreement — your employer must be set up to administer it and is not legally required to offer it. Larger employers and government agencies are more likely to offer salary packaging; many smaller businesses don't have arrangements in place.
How much can you salary sacrifice in 2025-26?
There is no general legal limit on how much salary you can sacrifice — but each benefit type has its own ceiling. Super is effectively capped at the $30,000 concessional cap (which includes your employer's 12% SG), NFP living-expense packaging is capped at $9,010 a year, and your employer's policy may impose its own limits.
What are FBT-exempt salary sacrifice items?
FBT-exempt items include eligible electric vehicles under $91,387 (via novated lease), one laptop or tablet per FBT year used primarily for work, work-related tools and equipment, and capped living-expense packaging for eligible hospital, ambulance and not-for-profit staff (up to $9,010 a year).
What is the minimum income to benefit from salary sacrifice?
For super, the saving is the gap between your marginal rate and the 15% fund tax — it becomes meaningful from about $45,001, where the middle bracket starts. Below the LISTO income limit the contributions tax is already largely refunded, so the benefit is small. FBT-exempt items can benefit any taxpayer.
Does salary sacrifice affect my borrowing capacity?
It can. Salary sacrifice reduces your take-home pay, and lenders assess serviceability on your net income and ongoing commitments. A novated lease in particular is treated as a liability. Most arrangements can be paused or unwound, but factor the timing in if you are about to apply for a mortgage.