What is salary sacrifice?
Salary sacrifice is an arrangement where you agree to forgo part of your pre-tax salary in exchange for a non-cash benefit provided by your employer. It is also known as salary packaging. The benefit is paid from your pre-tax income, reducing your taxable income and therefore the amount of tax you pay. However, some benefits are subject to Fringe Benefits Tax (FBT), which your employer may pass on to you.
In Australia, salary sacrifice is common in the public sector, not-for-profit organisations, and some private companies. The Australian Taxation Office (ATO) sets the rules on what can be sacrificed and how benefits are valued.
What can you salary sacrifice?
The ATO allows a wide range of items, but not everything is tax-free. Common salary sacrifice items include:
- Cars – through a novated lease, where lease payments, fuel, maintenance, and insurance are taken from your pre-tax salary.
- Superannuation – additional contributions above the compulsory Super Guarantee, taxed at 15% up to the concessional cap.
- Laptops, tablets, and phones – if used mainly for work.
- Work-related expenses – such as professional memberships, tools, or uniforms.
- Childcare – some employers offer salary-sacrificed childcare, though caps apply.
- Gym memberships – often subject to FBT unless provided for work purposes.
- Housing – common in remote areas or for certain industries.
Not all benefits are treated equally. Some are exempt from FBT (e.g., super contributions up to the cap), while others attract FBT at the highest marginal rate plus Medicare levy. Your employer may charge you the FBT amount, reducing the net benefit.
How salary sacrifice changes your pay: year, week, and hour
To understand how salary sacrifice affects your pay, it helps to look at the same figure as a year, a week, and an hour. The national full-time adult ordinary-time average, according to the ABS Average Weekly Earnings (May 2026), is $2,083.70 a week, or about $108,352 a year (multiplied by 52). That works out to roughly $54.83 an hour on a 38-hour week.
If you salary sacrifice, say, $10,000 a year into super, your taxable income drops to $98,352. Your weekly pay before tax becomes about $1,891.38, and your hourly rate (on 38 hours) falls to about $49.77. But remember, you also receive the super contribution, which is not cash in hand today.
The effect on take-home pay depends on your marginal tax rate. For 2026–27, resident tax rates are: 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 that. Plus a 2% Medicare levy. Salary sacrifice reduces the amount taxed at your highest rate, so the saving is greatest for higher earners.
Comparing your pay to the national average
The Place a salary on the line tool lets you enter your yearly salary before tax and see where it sits against the national full-time average. If you salary sacrifice, your reported salary for the tool should be your gross salary before the sacrifice, or the reduced amount? Typically, the tool asks for your salary before tax, which is the amount agreed in your contract. Salary sacrifice reduces that amount for tax purposes, but your contract salary may remain the same. Check with your employer how they report it.
For context, the full-time median salary in Australia is about $90,532 a year (ABS Employee Earnings, August 2025), and the all-employees median is about $74,100. The national minimum wage from 1 July 2026 is $26.44 an hour, $1,004.90 a week, or about $52,255 a year on 38 hours. Salary sacrifice can bring your taxable income closer to these figures, but your total remuneration (including benefits) may be higher.
State differences
Salary sacrifice rules are national, but the benefit may vary by state because of different average earnings. For example, the full-time average in the Australian Capital Territory is about $119,090, while in Tasmania it is about $96,008. A salary sacrifice arrangement that saves tax in a high-income state like the ACT may have a larger dollar benefit than in a lower-income state. See the States and territories page for more details.
Caps and limits
There are limits on how much you can salary sacrifice. For super, the concessional contribution cap is $30,000 per year (2026–27). For novated leases, there is no specific cap, but the benefit must be reasonable. For other items, the ATO uses a “otherwise deductible” rule: you can only salary sacrifice an amount that you would have been able to claim as a tax deduction if you had paid for it yourself.
Employers may also set their own limits. Not-for-profit organisations often have higher caps for certain benefits like meal entertainment or accommodation.
Fringe Benefits Tax (FBT)
Many salary sacrifice benefits are subject to FBT, which is paid by the employer at the top marginal rate (47% including Medicare levy in 2026–27). Some employers pass this cost on to you, reducing the benefit. However, some benefits are FBT-exempt, such as super contributions up to the cap, or work-related items that are primarily for business use.
If you work for a public hospital, charity, or other not-for-profit, you may be eligible for FBT exemptions or rebates, making salary sacrifice more attractive.
How to get started
To set up salary sacrifice, you need to negotiate with your employer. Not all employers offer it, and some have standard packages. You should get a written agreement that specifies the benefit, the amount sacrificed, and any FBT implications. The ATO provides guidance, and you can also consult a tax professional.
For more information on how salary sacrifice affects your pay compared to industry and occupation medians, visit the Guides section. You can also learn about How the figures are set to understand the data behind the averages.
Summary
Salary sacrifice can be a tax-effective way to receive benefits, but it reduces your cash take-home pay. Understanding how it changes your yearly, weekly, and hourly pay relative to the national full-time average helps you make informed decisions. Always check the ATO rules and your employer’s policy before entering an arrangement.