What is salary sacrificing and how does it affect my taxable income?

Salary sacrificing (also called salary packaging) is an arrangement where you and your employer agree for you to receive less before-tax salary in exchange for your employer paying for certain benefits of similar value. This reduces your taxable income, so you may pay less income tax and Medicare levy. The ATO explains that the arrangement must be entered before you perform the work, be documented, and you cannot access the sacrificed salary. Your employer may need to pay fringe benefits tax (FBT) on some benefits, and they may ask you to make an employee contribution to reduce that FBT.

How does salary sacrificing change my take-home pay compared with the national average?

The national full-time adult ordinary-time average is $2,083.70 a week ($108,352 a year). If you earn that salary and salary sacrifice part of it, your taxable income drops, lowering your tax. For example, the ATO shows a worker earning $65,000 who salary sacrifices $17,353 for a car (without employee contributions) ends up with a taxable income of $47,647, paying $5,082 in income tax plus $953 Medicare levy, leaving about $41,612 after tax and salary sacrifice – slightly less than the no-sacrifice scenario. With employee contributions of $7,000, net disposable income rises to $43,593 – higher than no sacrifice. Your actual take-home depends on your salary, the benefit type, and any employee contributions.

What should I consider before entering a salary sacrifice arrangement?

Before sacrificing, check your total remuneration, the type of benefit, and any FBT implications. The ATO advises seeking financial advice. Salary sacrificing reduces your taxable income, which can lower your tax, but may affect government benefits and super contributions. The arrangement must be effective – no access to sacrificed salary, agreed before work is done. Also note that the national minimum wage from 1 July 2026 is $26.44 an hour ($52,255 a year on 38 hours). The full-time median is about $90,532 (ABS Employee earnings, August 2025). Your sacrifice could bring you closer to or further from the average depending on your circumstances.

Salary sacrificing and the national average: a take-home pay sketch

Salary sacrificing and your take-home pay

Salary sacrificing is a way to structure your pay so that you receive less before-tax salary in exchange for your employer providing certain benefits. The Australian Taxation Office (ATO) explains that this reduces your taxable income, which can lower the amount of income tax and Medicare levy you pay. But how does it affect your take-home pay compared with the national full-time average?

The national reference line

The site's reference line is the national full-time adult ordinary-time average: $2,083.70 a week, or about $108,352 a year (ABS Average Weekly Earnings, May 2026). This is the figure used to show where your salary sits. 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, about $52,255 a year on a 38-hour week.

How salary sacrificing works

Under a salary sacrifice arrangement, you and your employer agree that part of your remuneration will be in the form of benefits rather than cash salary. The ATO says the arrangement must be entered before you perform the work, be documented, and you cannot access the sacrificed salary. If you do not receive a fringe benefit and it is cashed out, that amount becomes salary and is taxed as normal income.

Some benefits are fringe benefits, meaning your employer may have to pay fringe benefits tax (FBT). To reduce FBT, your employer may ask you to make an employee contribution from your after-tax salary. The ATO provides a detailed example for the 2025–26 year.

A worked example: Sam earns $65,000

The ATO illustrates three scenarios for Sam, who earns $65,000 a year:

No salary sacrifice: Taxable income $65,000. Income tax (2025–26 rates) $10,288, Medicare levy $1,300. After tax $53,412. Less car expenses of $11,500, net disposable income $41,912.
Salary sacrifice a car without employee contributions: Salary sacrifice $17,353. Taxable income $47,647. Income tax $5,082, Medicare $953. After tax and sacrifice $41,612. No car expenses. Net disposable income $41,612 – slightly less than no sacrifice.
Salary sacrifice a car with employee contributions of $7,000: Salary sacrifice $4,145. Taxable income $60,855. Income tax $9,045, Medicare $1,217. After tax and sacrifice $50,593. Less employee contribution $7,000. Net disposable income $43,593 – higher than no sacrifice.

This shows that salary sacrificing can increase net disposable income if structured with employee contributions, but the outcome depends on your salary, the benefit, and the FBT treatment.

Comparing to the national average

If Sam earned the national full-time average of $108,352, the same principles apply. Suppose Sam salary sacrifices $20,000 for a car without employee contributions. Taxable income becomes $88,352. Using 2026–27 tax rates (nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above), the tax on $88,352 would be:

$0 on first $18,200
15% on $26,800 ($4,020)
30% on $43,352 ($13,005.60) Total tax $17,025.60, plus Medicare 2% ($1,767.04) = $18,792.64. After tax and sacrifice, net disposable income about $69,559. Without sacrifice, tax on $108,352 would be higher: $0 + $4,020 + 30% on $63,352 ($19,005.60) = $23,025.60, plus Medicare $2,167.04 = $25,192.64, leaving $83,159.36 before car expenses. The sacrifice reduces taxable income and tax, but you lose access to the sacrificed cash.

State averages and your location

Your take-home pay also depends on where you live, though tax rates are national. State full-time averages vary:

New South Wales: about $109,658
Victoria: about $106,137
Queensland: about $106,064
South Australia: about $102,450
Western Australia: about $115,825
Tasmania: about $96,008
Northern Territory: about $103,173
Australian Capital Territory: about $119,090

See state and territory averages for more detail.

Medians and minimum wage

The full-time median of about $90,532 and all-employees median of about $74,100 are lower than the average, meaning many workers earn less than the line. The minimum wage of $52,255 is well below. Salary sacrificing is more common for higher earners, but anyone can enter an arrangement if their employer offers it.

Key considerations

Tax impact: Lower taxable income means less tax, but you may lose access to some government benefits based on adjusted taxable income.
Super: Salary sacrifice contributions to super are treated differently – they are concessional contributions, not fringe benefits. The ATO notes that salary sacrificing into super can also reduce tax.
FBT: Your employer may pass on FBT costs, reducing your net benefit.
Employee contributions: Paying after-tax contributions can reduce FBT and improve net disposable income, as shown in Sam's example.

For more on how the figures are set, see How the figures are set. For guides on salary packaging, visit Guides.

Bottom line

Salary sacrificing can increase your take-home pay if structured well, but it does not change the national average. The average remains $108,352 a year. Your own salary, after sacrificing, will be compared to that line. Use the tool on this site to place your salary on the line and see where you sit.