What is salary packaging in Australia?

Salary packaging (also called salary sacrificing) is an arrangement where an employee agrees to forgo part of their salary in exchange for benefits provided by their employer. Common examples include novated car leases, additional superannuation contributions, and electronic devices. The benefits are often subject to fringe benefits tax (FBT), but some items like superannuation above the compulsory guarantee are FBT-free. The ATO governs the rules, and the benefit is reported as a reportable fringe benefits amount on your payment summary.

How does salary packaging affect my take-home pay?

Salary packaging reduces your taxable income, which can lower the amount of tax and Medicare levy you pay. For example, if you earn the national full-time average of $108,352 and package $10,000 into superannuation, your taxable income drops to $98,352. Using the 2026–27 tax rates (nil to $18,200; 15% to $45,000; 30% to $135,000; plus 2% Medicare), you would save approximately $3,200 in tax and Medicare levy. Your take-home pay increases by that amount, though you receive less cash salary because the $10,000 goes into super. The exact saving depends on your marginal tax rate and the type of benefit.

Is salary packaging worth it for someone earning the average salary?

It can be, especially if you package items that are exempt from FBT or have concessional tax treatment, such as superannuation contributions up to the concessional cap of $27,500 (2026–27). For an average earner in the 30% tax bracket, salary sacrificing into super saves 15% tax (the difference between your marginal rate and the 15% contributions tax). However, you should consider the impact on your reportable fringe benefits amount, which may affect eligibility for the Medicare Levy Surcharge, the Private Health Insurance Rebate, or other government benefits. It's advisable to consult a tax professional or use the ATO's resources to model your situation.

Salary Packaging Australia: How It Affects Your Take-Home Pay Compared to the Average Salary

Understanding Salary Packaging in Australia

Salary packaging, also known as salary sacrificing, is a common workplace arrangement in Australia. It allows you to swap part of your pre-tax salary for benefits such as a car, superannuation contributions, or other fringe benefits. The key advantage is that the packaged amount is generally not subject to income tax, though it may attract fringe benefits tax (FBT) paid by your employer. For employees earning around the national full-time average, salary packaging can be a useful tool to increase take-home pay or save for retirement.

The National Full-Time Average as a Reference

The ABS Average Weekly Earnings for May 2026 puts the national full-time adult ordinary-time average at $2,083.70 per week, or about $108,352 per year when multiplied by 52 weeks. This figure is the benchmark used on this site. To understand how salary packaging might affect your finances, it helps to start with this baseline. For a resident taxpayer in 2026–27, the tax on $108,352 would be calculated as follows: no tax on the first $18,200, 15% on the next $26,800, and 30% on the remainder up to $135,000, plus a 2% Medicare levy. This yields an estimated annual tax of about $25,193, leaving a take-home pay of around $83,159 per year, or about $1,599 per week.

How Salary Packaging Can Change Your Take-Home Pay

When you salary package, your employer reduces your cash salary and provides a benefit instead. The benefit may be exempt from FBT (e.g., superannuation contributions up to the concessional cap) or subject to FBT (e.g., a car for personal use). If the benefit is exempt, you effectively avoid income tax on that amount. For example, if you salary sacrifice $10,000 into superannuation, your taxable income drops to $98,352. Using the same tax brackets, your tax and Medicare levy would be about $21,993, saving you roughly $3,200. Your take-home pay increases by that amount, though you have less cash in hand because the $10,000 goes into super. The saving is the difference between your marginal rate (30% plus 2% Medicare) and the 15% contributions tax inside the super fund, plus the Medicare levy saving.

Common Salary Packaging Arrangements

Novated Leases: A popular way to package a car. The lease payments, running costs, and sometimes fuel are paid from pre-tax salary. However, the private use portion of the car is subject to FBT, calculated using the statutory formula. For an average earner, a novated lease can still be beneficial if the FBT is less than the tax saved. The FBT rate is 47% (including Medicare Levy, and the taxable value is based on the car's cost and the percentage of private use.
Superannuation Contributions: Salary sacrificing into super is one of the most tax-effective strategies. Contributions up to the concessional cap ($27,500 in 2026–27) are taxed at only 15% in the fund, compared to your marginal rate of 30% plus Medicare. This can significantly boost your retirement savings. Note that your employer's super guarantee (SG) contributions count towards the cap, so you must ensure total contributions do not exceed the limit.
Other Benefits: Some employers offer packaging for laptops, phones, or even gym memberships. These are often subject to FBT unless they are primarily for work use. The ATO provides guidelines on what qualifies.

Considerations and Limits

While salary packaging can increase your take-home pay, it's important to be aware of the rules. The ATO requires that the packaged benefit be reported on your payment summary as a reportable fringe benefits amount (RFBA). A high RFBA can affect your eligibility for the Medicare Levy Surcharge (if your income for MLS purposes exceeds $93,000 for singles) and the Private Health Insurance Rebate. Additionally, salary packaging does not reduce your super guarantee contributions, which are based on your ordinary time earnings (OTE) – the cash salary before packaging. So your employer must still receive the SG on your original salary. Also, some items like entertainment or school fees are generally not allowed for salary packaging.

State-by-State Differences

The national average masks variations across states. For instance, the full-time average in New South Wales is about $109,658, while in Tasmania it's $96,008. Salary packaging benefits are consistent across Australia because they are governed by federal tax law, but your marginal tax rate depends on your total taxable income. If you live in a state with a lower average, your tax savings from packaging might be proportionally larger relative to your salary. You can compare your salary with state averages on the States and territories page.

How the Figures Are Set

The salary figures used here come from the ABS Average Weekly Earnings survey (May 2026) for full-time adult ordinary-time earnings, and the ABS Employee Earnings and Hours survey (August 2025) for medians. The national minimum wage is set by Fair Work and from 1 July 2026 is $26.44 per hour, or $52,255 per year on a 38-hour week. For more detail on how these benchmarks are determined, see How the figures are set.

Conclusion

Salary packaging in Australia offers a legitimate way to reduce your taxable income and increase your take-home pay, especially if you are in the 30% tax bracket or higher. For someone earning the national full-time average of $108,352, packaging a portion of salary into superannuation or a novated lease can yield meaningful savings. However, it's essential to consider the FBT implications and the impact on your reportable fringe benefits. Always seek professional advice tailored to your circumstances. To see where your own salary sits relative to the average, you can Place a salary on the line.