Salary Sacrifice in Australia: Tax Benefits Explained

What is salary sacrifice?

Salary sacrifice (also called salary packaging) is an arrangement between you and your employer where you agree to receive less pre-tax salary in exchange for your employer providing benefits of similar value. The most common form is salary sacrificing into superannuation, but you can also sacrifice towards items like novated car leases, laptops, or additional employer super contributions.

The key tax advantage: because the money is redirected before it reaches your pay, it's not counted as assessable income for income tax purposes. Instead of being taxed at your marginal rate (up to 45%), salary sacrifice super contributions are taxed at just 15% inside your super fund.

Salary sacrifice into super: how it works

When you salary sacrifice into super, your employer redirects part of your pre-tax salary directly into your super fund as an employer contribution. These are classified as concessional (before-tax) contributions and are taxed at a flat 15% by your super fund, rather than at your marginal income tax rate.

Your employer's Superannuation Guarantee (SG) contributions — currently 12% for 2025-26 — also count as concessional contributions. Both your SG and salary sacrifice amounts are combined when calculating whether you've exceeded the concessional contributions cap.

The $30,000 concessional contributions cap (2025-26)

For the 2025-26 financial year, the concessional contributions cap is $30,000. This cap covers all before-tax super contributions combined:

• Superannuation Guarantee (SG) — your employer's mandatory 12% contribution
• Salary sacrifice — voluntary pre-tax contributions you arrange with your employer
• Personal deductible contributions — contributions you make yourself and claim as a tax deduction

How much tax does salary sacrifice save? By bracket

The tax saving depends entirely on your marginal tax rate. The higher your bracket, the more you save per dollar sacrificed. Here's the saving on a $10,000 salary sacrifice for each bracket:

Savings shown are on income tax only and exclude the 2% Medicare Levy saving, which adds an extra $200 per $10,000 sacrificed for all brackets. Does not account for Division 293 tax for high-income earners.

Carry-forward unused cap amounts (catch-up contributions)

If you haven't fully used your $30,000 concessional cap in previous years, you may be able to carry forward the unused portion and contribute more than $30,000 in a single year. This is sometimes called “catch-up” contributions.

To use carry-forward amounts, you must:

• Have a total super balance under $500,000 as at 30 June of the previous financial year
• Have unused cap amounts from the past 5 years (carry-forward has been available since 2018-19, so up to 5 years of unused cap can accumulate)

Division 293: extra tax for high-income earners

If your income plus concessional super contributions exceed $250,000, you'll pay an additional 15% tax on the super contributions that push you over that threshold. This brings the effective tax on those contributions to 30% instead of 15%.

Even at 30%, this is still well below the top marginal rate of 45% plus 2% Medicare Levy (47% total). So salary sacrifice still saves tax for high-income earners — the saving is just smaller.

What salary sacrifice does NOT reduce

This is one of the most misunderstood aspects of salary sacrifice. While it reduces your income tax, it does not reduce the income used to calculate:

• HECS-HELP repayments — repayment income includes reportable employer super contributions (RESC), which captures salary sacrifice amounts
• Medicare Levy Surcharge (MLS) — MLS income also includes RESC
• Family Tax Benefit and Child Care Subsidy — adjusted taxable income includes RESC
• Private health insurance rebate tiers — income for surcharge purposes includes RESC

Novated leases and salary sacrifice

A novated lease is a three-way agreement between you, your employer, and a finance company. Your employer makes car lease payments from your pre-tax salary (and sometimes post-tax salary too). Unlike super contributions, novated lease payments are considered fringe benefits and are subject to Fringe Benefits Tax (FBT).

Electric vehicle FBT exemption

Battery electric vehicles (BEVs) and hydrogen fuel cell vehicles are exempt from FBT when packaged through a novated lease, provided:

• The vehicle was first held and used on or after 1 July 2022
• The purchase price is below the fuel-efficient Luxury Car Tax threshold ($91,387 for 2025-26)
• Luxury Car Tax has never been payable on the vehicle

This exemption makes salary packaging an EV significantly cheaper than a petrol car. The entire lease cost (including running costs and electricity to charge) can be paid from pre-tax salary with no FBT liability.

Petrol and diesel vehicles

Non-exempt vehicles incur FBT at 47% (matching the top marginal rate plus Medicare Levy). The Employee Contribution Method (ECM) can reduce the FBT liability — any post-tax contributions you make towards running costs directly reduce the taxable value of the fringe benefit. Whether a novated lease saves you money on a non-EV depends on your income, the vehicle cost, and how much your employer absorbs in administration. Run the numbers carefully before committing.

Not-for-profit salary packaging

Employees of certain not-for-profit organisations, public hospitals, and charities can access additional FBT-exempt salary packaging beyond super. These employers can provide up to $15,900 per FBT year in general living expenses (rent, mortgage payments, school fees) free of FBT, plus an additional $2,650 in meal entertainment benefits.

The $15,900 equates to a grossed-up value of $30,000. This packaging is on top of any salary sacrifice into super, making it a significant perk for NFP employees. Not all not-for-profits qualify — the organisation must be a registered public benevolent institution, health promotion charity, or public/not-for-profit hospital.

Worked example: $90,000 salary with salary sacrifice

Let's walk through a real scenario. Alex earns $90,000 and wants to salary sacrifice $8,000 into super.

Alex's take-home pay drops by $5,440, but $6,800 goes into super (the $8,000 contribution minus $1,200 in 15% contributions tax). That means Alex gets $1,360 more in total value than if the $8,000 had been paid as salary. The SG contributions of $10,800 (12% of $90,000) remain unchanged.

How to set up salary sacrifice

Salary sacrifice must be arranged with your employer before you earn the income. You can't retrospectively sacrifice income you've already earned. Here's the typical process:

1. Check your cap space. Log in to myGov and check your super account for year-to-date concessional contributions. Subtract your expected SG for the rest of the year to see how much room you have under the $30,000 cap.
2. Request the arrangement with your employer. Most employers have a salary sacrifice form or use a packaging provider (like Maxxia, RemServ, or SmartSalary). Specify the dollar amount per pay period.
3. Choose your super fund. Contributions go to your nominated fund. If you have multiple funds, make sure the sacrifice goes to the right one.
4. Monitor throughout the year. Check your super fund statements to confirm contributions are being received. Adjust if your income changes or you're approaching the cap.

When salary sacrifice may not be worth it

• You're in the 16% bracket ($18,201 – $45,000): The saving is minimal (1% after the 15% super tax). You may be better off keeping the cash accessible.
• You need the money before retirement: Super is preserved until you reach your preservation age (between 55 and 60, depending on birth year). If you might need the funds sooner, salary sacrifice locks them away.
• You have high-interest debt: Paying off a credit card at 20%+ interest will almost always deliver a better return than the 15-30% tax saving on salary sacrifice.
• You're close to the concessional cap: If your employer SG already uses most of the $30,000 cap (e.g. on a $250,000 salary, SG is $30,000), there's no cap space left for salary sacrifice.
• You're saving for a first home: Consider the First Home Super Saver Scheme (FHSSS) instead, which lets you withdraw voluntary super contributions (up to $50,000) for a home deposit, taxed at your marginal rate minus a 30% offset.