What Is Salary Sacrificing?
Salary sacrificing (also called salary packaging or total remuneration packaging) is an arrangement where you and your employer agree to reduce your before-tax salary in exchange for your employer providing certain benefits of similar value. According to the Australian Taxation Office, this reduces your taxable income, meaning you may pay less tax. Common benefits include cars, superannuation contributions above the compulsory rate, laptops, or even school fees.
To be effective, the arrangement must be entered into before you perform the work, be documented in an agreement, and you must not have access to the sacrificed salary. If you later cash out a benefit, that amount becomes assessable income.
How It Relates to the National Full-Time Average
The national full-time adult ordinary-time average earnings, as measured by the ABS Average Weekly Earnings for May 2026, is $2,083.70 per week, or about $108,352 per year (multiplied by 52). This figure represents gross earnings before tax and before any salary sacrifice adjustments. When you sacrifice salary, your gross cash salary decreases, but your total remuneration (cash plus benefits) may remain the same or even increase if the employer bears FBT costs.
If your gross salary is at or above the national average, salary sacrificing can be a way to reduce your taxable income, potentially dropping you into a lower tax bracket. For example, someone earning $120,000 could sacrifice $20,000 into super, bringing taxable income to $100,000—below the average—and saving thousands in tax. However, the sacrificed amount is not lost; it goes into super or other benefits.
Tax and Take-Home Pay: A Resident’s Sketch
Using the 2026–27 resident tax rates (nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above) plus the 2% Medicare levy, we can see how salary sacrificing changes net disposable income. The ATO provides an example for an employee earning $65,000 who sacrifices $17,353 for a car without employee contributions. Their taxable income drops to $47,647, income tax falls from $10,288 to $5,082, and Medicare from $1,300 to $953. Net disposable income after car expenses is $41,612—slightly less than the $41,912 without sacrificing. But with employee contributions of $7,000, net disposable income rises to $43,593, because the employee contribution reduces FBT and the car expenses are covered.
This example shows that salary sacrificing can improve take-home pay when structured well, but it depends on your specific salary and the benefits chosen. For someone on the national average of $108,352, sacrificing into super (which is concessional taxed at 15% up to caps) could be highly beneficial, as the marginal tax rate is 30% plus 2% Medicare, so the tax saving is 17% on the sacrificed amount.
Other Key Benchmarks
For context, the full-time median earnings (ABS Employee Earnings, August 2025) are about $90,532 per year, and the all-employees median is about $74,100. The national minimum wage from 1 July 2026 is $26.44 per hour, $1,004.90 per week, or about $52,255 per year on a 38-hour week. Award minimums rose by 4.75% from that date. These figures help you see where your salary sits relative to the broader workforce.
Important Considerations
Salary sacrificing affects more than just income tax. It can reduce your superannuation guarantee (if you sacrifice into super, the employer may still pay the compulsory 11.5% on your reduced salary, but you can top up). It may also affect government benefits like Family Tax Benefit or Child Care Subsidy, which are based on adjusted taxable income. The ATO notes that reportable fringe benefits appear on your income statement, which can impact these means-tested payments.
Always seek professional financial advice before entering a salary sacrifice arrangement. The Fair Work Commission regulates employment agreements, and your employer must agree to the arrangement.
Where to Learn More
For more details on how the figures are calculated, see How the figures are set. To understand the site’s methodology and limitations, visit About this site. You can also explore Guides for practical tips on salary packaging and tax planning.