Salary Packaging in Australia: How It Works & Is It Worth It?

Salary packaging (also called salary sacrifice) is an arrangement where you agree to receive less pre-tax salary in exchange for your employer providing benefits of equivalent value. The key advantage is that the benefits are often taxed more favourably than salary — either through Fringe Benefits Tax (FBT) concessions or through the lower 15% super contributions tax rate.

The most common forms of salary packaging include additional super contributions, novated leases for motor vehicles, laptops and electronic devices, and — for employees of not-for-profit, charitable, and public hospital organisations — general living expenses such as rent, mortgage payments, and credit card bills. The tax savings depend on your marginal tax rate, the type of benefit, and your employer's FBT status. For someone on a marginal rate of 37%, salary packaging $10,000 into super saves approximately $2,200 in tax.

The most straightforward and widely available form of salary packaging is additional super contributions. Instead of receiving income taxed at your marginal rate (up to 45% plus Medicare levy), the amount is contributed to your super fund and taxed at only 15%.

For high-income earners, this represents a 30% or more tax saving on every dollar contributed. The total of employer SG contributions plus salary sacrifice contributions can't exceed the concessional contributions cap of $30,000 per year (2025-26). If your employer contributes 12% SG on a $100,000 salary ($12,000), you can salary sacrifice up to $18,000 into super before hitting the cap.

Don't skip this part. At a marginal rate of 34.5%, this saves approximately $3,510 in tax. If you've unused concessional cap from previous years (since 2018-19), you may be able to contribute more through the carry-forward rule, provided your total super balance is below $500,000.

A novated lease is a three-way agreement between you, your employer, and a leasing company where your employer makes the car lease payments from your pre-tax salary. This can save on both income tax and GST — you avoid paying GST on the buy price and running costs, and the pre-tax salary deduction reduces your taxable income.

The tax savings depend on how much you drive (more kilometres = more tax-effective), your marginal tax rate, and the value of the vehicle. For a $50,000 car driven 15,000 km per year, a novated lease might save $3,000 to $6,000 per year compared to buying the car privately and paying from after-tax income. However, novated leases are not always the best option — they include fees, and if you leave your employer, you may need to take over the lease personally.

Electric vehicles receive particularly favourable treatment under current FBT rules, with an exemption for EVs below the luxury car tax threshold.

Employees of public hospitals, charities, and not-for-profit organisations receive the most generous salary packaging benefits in Australia. Public hospital and charity employees can salary package up to $15,900 per year of general living expenses (rent, mortgage, groceries, bills) completely FBT-free, plus an additional $2,650 in meal entertainment expenses.

The practical side: This means up to $18,550 of your salary is effectively tax-free. For someone on a marginal rate of 34.5%, this saves approximately $6,400 per year in tax. Not-for-profit employees (non-charity) can package up to $15,900 per year.

These generous caps explain why some health and charity workers accept lower base salaries — the after-tax outcome can be better than a higher salary in the private sector. The salary packaging is administered by specialist providers who charge a small fee for the service.

Salary packaging reduces your taxable income, which can have flow-on effects — both positive and negative — on other income-tested entitlements and obligations. On the positive side, a lower taxable income may reduce your HECS-HELP repayments (if your income drops below the threshold), reduce or eliminate the Medicare levy surcharge, and increase eligibility for government benefits.

On the negative side, salary packaging can reduce your employer's SG contributions if super is calculated on your reduced salary rather than your pre-packaging salary (check your employment contract). It may also affect Centrelink payments, as some payments use adjusted taxable income which adds back reportable fringe benefits. When salary packaging into super, the contributions are counted in your concessional cap and may trigger Division 293 tax if your income plus super contributions exceeds $250,000.

Salary packaging into super is almost always worth it for anyone earning above $45,000 (where the gap between your marginal rate and the 15% super tax rate becomes meaningful), provided you can afford to reduce your take-home pay. For NFP and hospital workers, the general living expense packaging is essentially free money — you should maximise it.

What actually happens: Novated leases need careful analysis — run the numbers for your specific situation using a novated lease calculator before committing. Use our Salary Sacrifice Calculator to model how additional super contributions affect your take-home pay, tax, and retirement balance. Consider your current cash flow needs, retirement savings goals, and other financial priorities.

If you've high-interest debt, paying that off first may be a better use of funds than salary sacrificing into super, even with the tax benefit. That catches a lot of people off guard.