Introduction
Salary sacrifice for school fees is a popular way for Australian employees to reduce their taxable income by having their employer pay some or all of their children's school fees from pre-tax salary. This arrangement can lower the amount of income tax and Medicare levy you pay, potentially increasing your take-home pay. However, the benefit depends on your salary level relative to the national full-time average, your tax bracket, and your eligibility for other government payments.
How Salary Sacrifice Affects Your Taxable Income
Under a salary sacrifice agreement, you and your employer agree to reduce your gross salary by a set amount each pay period. Your employer then uses that amount to pay your school fees directly. Because the fees are paid from your pre-tax income, your taxable income is lower. The Australian Taxation Office (ATO) treats this as a fringe benefit, but many school fee arrangements are exempt from fringe benefits tax (FBT) if the school is a non-government school and the benefit is provided under a specific exemption.
Tax Savings at Different Income Levels
The tax savings from salary sacrificing school fees depend on your marginal tax rate. For the 2026–27 financial year, the resident tax rates are:
- Nil on income up to $18,200
- 15% on income from $18,201 to $45,000
- 30% on income from $45,001 to $135,000
- 37% on income from $135,001 to $190,000
- 45% on income above $190,000
Plus a 2% Medicare levy on most taxable income.
If your salary is at the national full-time average of $108,352 per year, you are in the 30% tax bracket. Sacrificing $10,000 of your salary for school fees would reduce your taxable income to $98,352, saving you $3,000 in tax plus $200 in Medicare levy (assuming no reductions). Your take-home pay would increase by that amount, but you would have effectively paid $10,000 in school fees from pre-tax dollars.
Comparing Take-Home Pay to the National Average
The national full-time adult ordinary-time average is $2,083.70 per week, or about $108,352 per year, according to the ABS Average Weekly Earnings for May 2026. This is the benchmark used by this site. If you salary sacrifice school fees, your gross salary for tax purposes is lower, so your take-home pay after tax may be higher than someone earning the same gross salary without salary sacrifice.
For example, consider two employees each earning $108,352 per year. One does not salary sacrifice; the other sacrifices $10,000 for school fees. The first pays tax of about $24,667 (30% on income above $45,000 plus Medicare) and takes home about $83,685. The second has a taxable income of $98,352, pays tax of about $21,667, and takes home about $76,685 plus the $10,000 in school fees paid by the employer. The net cash position is similar, but the salary sacrificer has paid school fees with pre-tax dollars, effectively getting a discount equal to their marginal tax rate.
State Variations
Your take-home pay also depends on where you live, because state averages differ. For instance, the full-time average in New South Wales is about $109,658, in Victoria about $106,137, and in Western Australia about $115,825. If you earn the state average in Western Australia, you are in the 30% tax bracket, and salary sacrificing school fees could save you more in tax than if you earned the lower Tasmanian average of $96,008. However, the mechanics of salary sacrifice are the same across all states and territories.
The Role of the Minimum Wage and Medians
It is important to distinguish between averages, medians, and the minimum wage. The national full-time median is about $90,532 per year, 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 per hour, or $1,004.90 per week on a 38-hour week, about $52,255 per year (Fair Work). Salary sacrifice for school fees is generally more beneficial for those earning above the median, because they are in higher tax brackets. For someone earning the minimum wage, salary sacrificing school fees would reduce an already low taxable income, potentially pushing them below the tax-free threshold, but the arrangement may not be practical given the low income.
Considerations and Limits
While salary sacrificing school fees can reduce your tax, it also reduces your superannuation guarantee contributions, which are calculated on your reduced salary. It may also affect your eligibility for family tax benefits, child care subsidy, and other means-tested payments. The ATO has rules about what constitutes an eligible school fee arrangement, and your employer must agree to the arrangement. It is wise to consult a tax professional or financial adviser before entering into a salary sacrifice agreement.
For more information on how your salary compares to the national average, you can place a salary on the line to see where you stand. To understand how the figures on this site are determined, see how the figures are set.
Conclusion
Salary sacrifice for school fees is a legitimate way to reduce your taxable income and potentially increase your take-home pay, especially if your salary is at or above the national full-time average of $108,352 per year. The tax savings depend on your marginal tax rate, and the arrangement must be set up correctly with your employer. Always consider the impact on superannuation and government benefits, and seek professional advice tailored to your circumstances.