What Is Salary Packaging?
Salary packaging is an arrangement where an employee agrees to receive a lower cash salary in exchange for non-cash benefits provided by their employer. These benefits can include a car (via a novated lease), laptop, superannuation contributions above the compulsory guarantee, or even school fees. The value of the benefit is deducted from your pre-tax salary, reducing your taxable income and therefore the amount of tax you pay. The employer may also pay fringe benefits tax (FBT) on certain benefits, but many items are exempt or have concessions.
In Australia, salary packaging is common in the public sector, hospitals, universities, and not-for-profit organisations, where employees can package up to a certain amount each year without incurring FBT. For-profit employers also offer it, often through novated leases or additional super contributions.
How Salary Packaging Affects Your Take-Home Pay
To understand the impact, consider the tax brackets for 2026–27. The tax-free threshold is $18,200, then 15% on income between $18,201 and $45,000, 30% on income between $45,001 and $135,000, 37% on income between $135,001 and $190,000, and 45% on income above $190,000. The Medicare levy of 2% applies to most taxpayers, with reductions for low-income earners.
Suppose your annual salary is $100,000. Without packaging, you pay tax on the full amount. If you salary package a car worth $15,000 per year, your taxable income drops to $85,000. You save tax at your marginal rate of 30% (plus 2% Medicare), saving about $4,800 in tax and Medicare levy. Your take-home pay increases by that amount, even though your cash salary is lower. The benefit effectively boosts your spending power.
The national full-time adult ordinary-time average is $2,083.70 per week, or about $108,352 per year (ABS Average Weekly Earnings, May 2026). If your packaged salary is below this average, packaging can help you keep more of your pay, narrowing the gap. The full-time median is about $90,532, and the all-employees median is about $74,100 (ABS Employee earnings, August 2025). For someone on the median, packaging can move their effective take-home closer to the average.
Salary Packaging and the National Average
The site's line is the national full-time average of $108,352 per year. When you read your pay as a year, a week, and an hour on a 38-hour week, the tool shows how far you are from this line. Salary packaging does not change the line, but it changes your taxable income. If you package a benefit, your reported salary on the site may be lower, but your take-home pay (cash plus benefit) may be higher. For example, a teacher earning $95,000 who packages $10,000 in benefits effectively has a total remuneration of $105,000, close to the average. The tool shows the cash salary, but you can adjust your input to reflect the packaged amount.
State averages vary. New South Wales is about $109,658, Victoria $106,137, Queensland $106,064, South Australia $102,450, Western Australia $115,825, Tasmania $96,008, Northern Territory $103,173, and the Australian Capital Territory $119,090. If you work in a high-average state like the ACT, packaging can help you reach or exceed that benchmark.
Common Salary Packaging Items
- Novated lease cars: A popular option where the lease payments, fuel, and maintenance are taken from pre-tax salary. The car is often used for both work and personal travel.
- Superannuation: You can salary sacrifice extra contributions into your super fund. These are taxed at 15% instead of your marginal rate, which is especially beneficial for higher earners.
- Laptops and electronics: If the item is primarily for work, it may be exempt from FBT.
- School fees: Some not-for-profits allow packaging school fees for children.
- Meals and entertainment: In certain sectors, entertainment benefits can be packaged.
Important Considerations
- Salary packaging reduces your taxable income for the purpose of the Medicare Levy Surcharge (if you don't have private health insurance and earn over $93,000 for singles).
- The minimum wage from 1 July 2026 is $26.44 per hour, $1,004.9 per week, about $52,255 per year (Fair Work). Award minimums rose 4.75%.
- The ABS publishes Average Weekly Earnings twice a year, for May and November. The figures used here are from May 2026.
- For more guidance on how salary packaging interacts with your pay, see our Guides and learn How the figures are set. You can also Place a salary on the line to see where your pay sits.
Conclusion
Salary packaging is a legitimate way to reduce tax and increase your effective income. By understanding the tax brackets, the national average, and your own circumstances, you can decide whether packaging benefits suits you. Always check with your employer or a tax professional, as rules vary by sector and benefit type.