Understanding Salary Sacrifice and Salary Packaging
Salary sacrifice and salary packaging are common terms in Australian workplaces, but they are often confused. Both involve structuring your pay to include non-cash benefits in exchange for a reduction in your before-tax salary. The key difference is that salary sacrifice specifically refers to the agreement to give up part of your salary for a benefit, while salary packaging is the broader process of arranging your total remuneration package. In everyday use, the two terms are used interchangeably, and the ATO treats them similarly for tax purposes.
What Is Salary Sacrifice?
Under a salary sacrifice arrangement, you and your employer agree that you will receive a lower gross salary in return for a benefit of equivalent value. Common examples include additional superannuation contributions, a novated lease car, or electronic devices. The sacrificed amount is deducted from your pre-tax salary, reducing your taxable income. Your employer may also pay fringe benefits tax (FBT) on certain benefits, but many arrangements (such as superannuation above the compulsory guarantee) are exempt or concessional.
What Is Salary Packaging?
Salary packaging is a broader term that covers any arrangement where your total remuneration includes a mix of cash and non-cash benefits. It can include salary sacrifice but also other elements like bonus structures, share plans, or allowances. Many employers offer salary packaging as a way to attract and retain staff, particularly in the not-for-profit sector where certain benefits (like salary packaging for living expenses) are capped and FBT-exempt. The ATO sets rules on what can be packaged and how it is taxed.
How These Arrangements Affect Your Pay Compared to the National Average
The national full-time adult ordinary-time average is about $108,352 per year, based on the ABS Average Weekly Earnings for May 2026. This figure represents gross earnings before any salary sacrifice deductions. When you use the Average Line tool to place a salary on the line, you should enter your gross salary (the amount before sacrifice) to see where you sit relative to the national average. If you enter your taxable income after sacrifice, your figure will appear lower than your actual gross earnings, which may understate your position.
For example, if your gross salary is $120,000 but you salary sacrifice $15,000 into super, your taxable income is $105,000. Compared to the national average of about $108,352, your taxable income is below average, but your gross salary is above. The tool compares gross salaries, so entering $120,000 would show you above the line. Always use the gross figure for an accurate comparison.
State averages also vary. For instance, the full-time average in New South Wales is about $109,658, while in Tasmania it is about $96,008. If you salary sacrifice, your gross salary may still be above or below these state benchmarks. The States and territories page provides more detail.
Tax Implications and the ATO
Salary sacrifice reduces your taxable income, which can lower the amount of tax you pay under the 2026–27 resident tax rates: 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 of 2% also applies, though some benefits may reduce your levy liability. The ATO requires that salary sacrifice arrangements be genuine and that the benefit is provided in lieu of salary. You cannot salary sacrifice below the national minimum wage of $26.44 per hour (from 1 July 2026), which equates to about $52,255 per year on a 38-hour week.
Using the Average Line Tool
The Average Line tool accepts your yearly salary before tax and shows your weekly and hourly equivalent on a 38-hour week, plus the distance from the national full-time average. If you have a salary sacrifice arrangement, enter your gross salary (the amount before sacrifice) to see how your total remuneration compares. For more on how the figures are set, see How the figures are set. The tool also allows you to compare against medians: the full-time median is about $90,532 and the all-employees median is about $74,100 (ABS Employee Earnings, August 2025). These medians are based on total earnings, including any salary sacrifice amounts, so they reflect the distribution of gross pay across the workforce.
In summary, salary sacrifice and salary packaging are valuable ways to structure your pay, but they do not change your gross earnings for the purpose of comparing to the national average. Always use your gross salary when using the Average Line tool to get an accurate picture of where you stand.