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 |
| Where a contribution is subject to Div 293 | 47% | 30% where the contribution is subject to Div 293 | $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.
If Division 293 applies, the extra tax is charged only on the lesser of the amount above its $250,000 threshold and your low tax contributions — concessional contributions excluding any excess over the cap. The contributions themselves count towards the threshold test. Source: ATO — Division 293 tax.
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 work equipment. The specific FBT exemption for salary-packaged work items stops from the FBT year beginning 1 April 2027, so check the treatment with your employer or provider. What is actually available depends on your employer's packaging arrangements.
Sources: ATO — salary sacrificing for employees, ATO — electric car exemption and Treasury Laws Amendment (Tax Reform No. 1) Act 2026 for the work-item change.
Superannuation
Most popular- ·Concessional cap $32,500/year (includes employer SG at 12%)
- ·Contributions taxed at 15% instead of your marginal rate
- ·Division 293 adds tax when income for surcharge purposes plus low-tax super contributions exceeds $250,000 (up to 30% total on affected contributions)
- ·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 $91,661 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, contract options may include paying the residual, refinancing or re-leasing; returning the car is available only if the agreement permits it
Healthcare / not-for-profit packaging
Hospital & NFP staff- ·For employees of public hospitals, ambulance services, and eligible NFPs
- ·Hospital and ambulance cap: $17,000 grossed-up each FBT year — a cash equivalent of about $9,010 of GST-free or otherwise non-GST-creditable living expenses
- ·PBI and health-promotion charity cap: $30,000 grossed-up each FBT year — a cash equivalent of about $15,900
- ·Separate meal-entertainment cap: $5,000 grossed-up (about $2,650 of spending); meal-entertainment above it counts towards the general cap
- ·The exact cash figure depends on the benefit's GST treatment and your employer's packaging rules
Work equipment (laptop, phone, tools)
Rules change 1 Apr 2027- ·Until 31 March 2027, eligible work-related items can qualify for the specific FBT exemption when primarily used in employment
- ·From the FBT year beginning 1 April 2027, that exemption does not apply to items provided under a salary packaging arrangement
- ·Work use, the item, employer policy and the arrangement still matter; confirm the FBT treatment before packaging an item
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 $32,500 concessional cap (your employer's 12% SG counts towards it), although eligible people may use unused carry-forward cap amounts. Eligible public hospitals and ambulance services have a $17,000 grossed-up FBT cap — a cash equivalent of about $9,010 for GST-free or otherwise non-GST-creditable living expenses — while eligible public benevolent institutions and health promotion charities have a $30,000 grossed-up cap, or about $15,900 in cash terms. The exact cash figure depends on the provider, benefit and GST treatment. A separate $5,000 grossed-up meal-entertainment cap (about $2,650 of spending) applies on top, and meal-entertainment spend above that separate cap counts towards the general cap. Novated leases and equipment have no single statutory dollar cap, but employer policy and cash flow 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. To weigh the long-run side of that trade-off, project your super balance at retirement with and without the extra contributions.
✓ 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 six mistakes:
Exceeding the concessional cap
Forgetting about cash flow
Expecting HECS relief
Expecting to duck the Medicare Levy Surcharge
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 2026-27?
There is no general legal limit on how much salary you can sacrifice — each benefit has its own rules. Super uses the $32,500 concessional cap, including your employer's 12% SG, with carry-forward cap space potentially available for eligible people. The annual FBT grossed-up cap is $17,000 for eligible public hospitals and ambulance services, and $30,000 for eligible public benevolent institutions and health promotion charities. Your provider converts those statutory caps into its available cash-equivalent benefits.
What are FBT-exempt salary sacrifice items?
FBT-exempt items can include eligible electric vehicles under $91,661 via novated lease. Work-related laptops, phones and tools can receive the specific work-item exemption only while the rules allow it: from the FBT year beginning 1 April 2027, that exemption does not apply when those items are provided under salary packaging. Eligible hospital, ambulance and not-for-profit staff may also access capped living-expense packaging, subject to their employer's FBT status and provider rules.
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 often treated as a liability. Whether an arrangement can be paused, changed or unwound depends on the employer, financier and provider, so check the contract before relying on that flexibility for a mortgage application.