What Is Salary Sacrifice in Australia?
Salary sacrifice (also called salary packaging) is a pre-tax arrangement where you agree with your employer to receive less take-home pay in exchange for non-cash benefits or additional superannuation contributions. Because the sacrificed amount is deducted before income tax is calculated, you pay less income tax — and potentially less Medicare levy too.
The most popular form of salary sacrifice in Australia is voluntary concessional super contributions. Instead of earning money, paying income tax at your marginal rate, and then contributing to super from after-tax dollars, you contribute from pre-tax salary. The super fund taxes the contribution at just 15% (the concessional tax rate) — well below most workers' marginal income tax rates.
How Salary Sacrifice into Super Works
When you set up a salary sacrifice arrangement with your employer:
- Your gross salary is reduced by the sacrifice amount before PAYG withholding is calculated
- Your employer pays the sacrificed amount directly to your nominated super fund
- The super fund taxes the contribution at 15% (the concessional tax rate)
- The remaining 85% is invested in your super account
The result: you pay less income tax, and your super balance grows faster. For most workers earning above $45,000, the marginal income tax rate (32.5%–45%) significantly exceeds the 15% super tax — making salary sacrifice a compelling strategy.
2025–26 Tax Rates and Salary Sacrifice Benefit
The benefit of salary sacrifice depends on the difference between your marginal income tax rate and the 15% concessional super tax. Here are the approximate net savings per $1 sacrificed at each tax bracket (2025–26 ATO rates, including 2% Medicare levy):
| Income Range | Marginal Rate (inc. Medicare) | Super Tax Rate | Net Saving per $1 Sacrificed |
|---|---|---|---|
| $18,201 – $45,000 | 21% | 15% | ~6¢ |
| $45,001 – $120,000 | 34.5% | 15% | ~19.5¢ |
| $120,001 – $180,000 | 39% | 15% | ~24¢ |
| $180,001+ | 47% | 15% | ~32¢ |
Source: ATO — Tax rates for individuals 2025–26. The low-income earner saving is modest; the benefit scales significantly with income.
Concessional Contributions Cap
The concessional contributions cap for 2025–26 is $30,000 per year, as set by the ATO. This cap includes:
- Your employer's mandatory Superannuation Guarantee (SG) contributions (11.5% in 2025–26)
- Any voluntary salary sacrifice contributions you make
- Any personal deductible contributions you claim under section 290-180
If your employer pays SG on a $90,000 salary (11.5% × $90,000 = $10,350), you have approximately $19,650 of remaining concessional cap to use via salary sacrifice. Contributions above the cap are included in your assessable income and taxed at your marginal rate — minus a 15% tax offset to avoid double taxation. See ATO — Concessional contributions cap.
Carry-Forward Concessional Contributions
Since 1 July 2018, if your total super balance is below $500,000, you can carry forward unused concessional cap space from the previous five years. This allows you to make larger concessional contributions in high-income years (for example, when you sell a business or receive a bonus) and maximise your super tax benefit in a single year. Check your available carry-forward balance in your myGov account or via your super fund.
Salary Sacrifice vs. Personal Deductible Contributions
If your employer does not offer a salary sacrifice arrangement, you can achieve a similar outcome through a personal deductible contribution (also called an after-tax contribution claimed as a deduction). You contribute from your bank account, notify your super fund using a Notice of Intent to Claim a Deduction form (NAT 71121), and then claim the contribution as a tax deduction on your income tax return. The contribution is then treated as a concessional contribution and taxed at 15% in the fund.
The tax saving is identical — both strategies use the same concessional cap and both attract 15% super tax. Salary sacrifice is simpler because it reduces PAYG withholding throughout the year (fewer tax surprises at return time), while personal deductible contributions improve cash flow during the year but require you to fund the contribution upfront.
Salary Sacrifice for Fringe Benefits
Beyond super, salary sacrifice can also cover:
- Novated car leases: A three-way arrangement between you, your employer, and a finance company. Running costs (fuel, registration, insurance, servicing) can also be included. Battery electric vehicles under the luxury car tax threshold are currently FBT-exempt — making EV novated leases highly tax-effective.
- Portable electronic devices: Laptops, tablets, and mobile phones used primarily for work are exempt from FBT.
- Work-related expenses: Some employers can salary package self-education expenses, work uniforms, and other approved items.
- Public hospital and public sector FBT exemptions: Some public hospitals, charities, and public benevolent institutions (PBIs) have a $9,010 or $17,000 FBT exemption cap, making salary packaging of living expenses and mortgage payments tax-effective for employees in those sectors.
Impact on Other Entitlements
Salary sacrifice reduces your reportable income for several purposes. Check the implications before setting up an arrangement:
- HECS-HELP repayments: Repayments are based on repayment income, which adds reportable employer super contributions (RESC) back to your taxable income — partially offsetting the reduction from super sacrifice.
- Child care subsidy and family payments: These are income-tested using family income, which may include reportable super contributions or fringe benefits. Salary sacrifice could affect your entitlements.
- Centrelink payments: If you receive any income-tested benefits, sacrificing salary can change your assessed income.
- Borrowing capacity: Lenders assess serviceability on gross income — check with your broker whether salary sacrifice affects your home loan application.
How to Set Up Salary Sacrifice
- Check with your employer or HR team that salary sacrifice arrangements are available and that they offer the specific benefit you want (super contributions, novated lease, etc.)
- Confirm how much concessional cap space you have remaining (gross salary × 11.5% employer SG already uses part of the $30,000 cap)
- Complete your employer's salary sacrifice form and nominate the amount or percentage
- Review the impact on your PAYG withholding — your employer should adjust your tax withheld
- Confirm the arrangement in writing before it takes effect
For personalised guidance, see the ATO salary sacrifice guide or consult a registered tax agent.