What is salary packaging and how does it affect my take-home pay?

Salary packaging (also called salary sacrificing) lets you pay for certain items or benefits with pre-tax income, reducing your taxable income and the tax you pay. Common packaged items include cars, laptops, superannuation above the compulsory rate, and childcare. The effect on take-home pay depends on your salary and the type of benefit. For example, packaging a car through a novated lease reduces your taxable income, but you still pay for the car from your pre-tax salary. The net benefit is the tax saved, minus any fringe benefits tax (FBT) your employer may pass on. The ATO sets rules on what can be packaged and caps for certain items, especially for not-for-profit employers.

How does salary packaging interact with the tax brackets and Medicare levy?

Salary packaging reduces your taxable income, which can lower the marginal tax rate you pay. For 2026–27, the tax brackets are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000. The Medicare levy is 2% of taxable income (with reductions for low earners). By packaging, you might drop into a lower bracket or reduce the Medicare levy surcharge if you earn above the threshold. For example, someone earning $108,352 (the national full-time average) who packages $10,000 would have a taxable income of $98,352, saving $3,000 in tax (30% bracket) plus $200 in Medicare levy. However, the benefit is smaller for those already in the lowest bracket.

Is salary packaging more beneficial for higher or lower incomes?

Generally, salary packaging is more beneficial for higher incomes because the tax saved is at a higher marginal rate. For someone earning above the national full-time average of $108,352, packaging can reduce taxable income from the 37% or 45% bracket, saving significant tax. For lower incomes, such as those near the national minimum wage of $52,255 a year, the tax saved is at 15% or 30%, and packaging may not be worth the administrative hassle. Additionally, some salary packaging benefits (like meal cards or entertainment) are capped or subject to FBT, which can reduce the net gain. The ABS Employee earnings data (August 2025) shows the all-employees median is $74,100, so many workers are in the 30% bracket, where packaging still offers moderate savings. Always check with your employer and a tax professional, as the rules vary by industry and employer type.

Is Salary Packaging Worth It? Compare Your Pay Against the National Average

Is Salary Packaging Worth It?

Salary packaging lets you pay for certain expenses with pre-tax dollars, reducing your taxable income and potentially increasing your take-home pay. But whether it's worth it depends on your salary, your employer's offerings, and your spending needs. This guide uses the latest ABS, Fair Work, and ATO figures to help you decide.

How Salary Packaging Works

When you salary package, you agree to forgo part of your pre-tax salary in exchange for a benefit. The benefit is then taxed differently—or not at all—depending on the item. Common examples include:

Novated car leases: You pay for a car and running costs from pre-tax income.
Superannuation above the compulsory 11.5%: Contributions up to the concessional cap ($30,000 in 2026–27) are taxed at 15% instead of your marginal rate.
Portable electronic devices: Laptops, tablets, and phones under $20,000 are FBT-exempt if used mainly for work.
Childcare: Some employers offer salary packaging for childcare, reducing your taxable income.

The ATO sets the rules, and employers may limit what you can package. Not-for-profit organisations (hospitals, charities) often have higher caps (up to $15,900 for general benefits and $2,650 for meal entertainment).

Your Pay in Context: Year, Week, and Hour

The national full-time adult ordinary-time average is $2,083.70 a week, or about $108,352 a year (ABS Average Weekly Earnings, May 2026, × 52). That works out to $54.83 an hour on a 38-hour week. This is the benchmark on this site. If you earn this amount, salary packaging could save you thousands in tax.

But the average hides a wide range. The full-time median is about $90,532, and the all-employees median is about $74,100 (ABS Employee earnings, August 2025). The national minimum wage from 1 July 2026 is $26.44 an hour, $1,004.90 a week, or $52,255 a year (Fair Work). Award minimums rose 4.75% from that date.

State averages also vary: New South Wales averages $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 ACT $119,090. If you live in a higher-average state like WA or the ACT, salary packaging might be more valuable because your marginal rate is likely higher.

When Is Salary Packaging Worth It?

For High Incomes (Above $108,352)

If your salary is above the national average, you're likely in the 37% or 45% tax bracket. Packaging $10,000 could save $3,700 or $4,500 in tax, plus $200–$300 in Medicare levy. For example, a WA worker earning $115,825 could package a car and reduce taxable income to $105,825, saving $3,000 (30% bracket) plus $200 Medicare levy. The benefit is clear.

For Middle Incomes ($74,100–$108,352)

Most full-time workers earn between the all-employees median ($74,100) and the national average ($108,352). This puts them in the 30% bracket. Packaging $5,000 saves $1,500 in tax plus $100 Medicare levy. It's still worthwhile, especially for items like super contributions (taxed at 15% inside super) or a laptop you need for work.

For Lower Incomes (Below $74,100)

If you earn near the minimum wage ($52,255) or the all-employees median, you're in the 15% or 30% bracket. The tax saved is smaller. For example, packaging $2,000 saves only $300 (15%) or $600 (30%). The administrative cost and potential FBT may outweigh the benefit. However, salary packaging for super can still help you build retirement savings with a lower tax rate inside super.

Tax Brackets and Medicare Levy

The 2026–27 tax rates are: nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above that. The Medicare levy is 2% on taxable income (reduced for low earners). Salary packaging reduces your taxable income, so you pay less tax and Medicare levy. But remember: some packaged benefits (like cars) incur FBT, which your employer may pass on as a higher cost. Always check the net benefit.

Practical Steps to Decide

Know your salary: Use the Place a salary on the line tool to see where your pay sits against the national average, median, and minimum wage.
Check your employer's policy: Not all employers offer salary packaging, and those that do may have caps or exclusions.
Calculate the tax saving: Estimate how much you'd package and multiply by your marginal tax rate (plus 2% Medicare). Subtract any FBT or fees.
Consider your needs: Only package items you would buy anyway. Don't overspend just to save tax.
**Read our Guides for more details on specific benefits like novated leases and super contributions.

The Bottom Line

Salary packaging is worth it if your marginal tax rate is 30% or higher and you have genuine expenses that qualify. For most full-time workers earning above the national median, the tax savings are real. But for lower incomes, the benefit is smaller and may not justify the paperwork. Use the national average of $108,352 as a guide: if you're above it, packaging is likely a smart move; if you're below, weigh the savings carefully. The ABS, Fair Work, and ATO figures provide the foundation for your decision.

How the Figures Are Set

The national average comes from the ABS Average Weekly Earnings survey, May 2026. Medians are from the ABS Employee Earnings and Hours survey, August 2025. The minimum wage is set by Fair Work, effective 1 July 2026. Tax rates are from the ATO for 2026–27. All figures are for full-time adult ordinary-time earnings unless stated otherwise. For more on methodology, see How the figures are set.