What Does Salary Packaging Mean?
Salary packaging, also known as salary sacrifice, is an arrangement between you and your employer where you agree to take a lower gross salary in exchange for certain benefits. These benefits can include a car, additional superannuation contributions, laptops, or even childcare vouchers. The key advantage is that the benefits are paid from your pre-tax salary, reducing your taxable income and therefore the amount of tax you pay.
How Salary Packaging Works
When you salary package, your employer deducts the cost of the benefit from your gross salary before calculating tax. For example, if your annual salary is $108,352 (the national full-time average according to the ABS Average Weekly Earnings, May 2026), and you package a car costing $15,000 per year, your taxable income becomes $93,352. This can move you into a lower tax bracket, saving you money. The benefit itself may also be exempt from Fringe Benefits Tax (FBT) in some cases, such as with superannuation contributions above the compulsory Super Guarantee.
Salary Packaging and the National Average
The national full-time adult ordinary-time average is $2,083.70 per week, or about $108,352 per year. This figure is from the ABS Average Weekly Earnings, May 2026. When you consider salary packaging, your effective take-home pay can be higher than someone earning the same gross salary without packaging. For instance, packaging superannuation contributions can boost your retirement savings while reducing your current tax bill. The full-time median salary is about $90,532 (ABS Employee earnings, August 2025), so many workers earn less than the average, making tax savings even more valuable.
Tax Implications
The Australian Tax Office (ATO) sets the tax rates for 2026–27: 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, and 45% on income above $190,000. The Medicare levy of 2% also applies, though reductions may be available. Salary packaging can reduce your taxable income, potentially lowering your marginal tax rate. However, some benefits may attract Fringe Benefits Tax, which your employer may pass on to you. It's important to understand the rules.
Common Salary Packaging Benefits
- Superannuation: Additional contributions above the Super Guarantee (currently 11.5% from 1 July 2026) can be salary sacrificed, reducing taxable income and building retirement savings.
- Motor vehicles: Novated leases allow you to package a car, with running costs paid from pre-tax salary.
- Work-related expenses: Laptops, phones, and other equipment can be packaged if used for work.
- Childcare: Some employers offer salary packaging for childcare fees.
How It Compares to the Minimum Wage
The national minimum wage from 1 July 2026 is $26.44 per hour, $1,004.90 per week, or about $52,255 per year on a 38-hour week. Award minimums rose by 4.75%. Salary packaging is less common for minimum wage earners, as the tax savings are smaller, but it can still be beneficial for superannuation.
State Averages
Full-time averages vary by state: New South Wales $109,658; Victoria $106,137; Queensland $106,064; South Australia $102,450; Western Australia $115,825; Tasmania $96,008; Northern Territory $103,173; Australian Capital Territory $119,090. These figures are from the ABS Average Weekly Earnings, May 2026. Salary packaging can be particularly advantageous in high-tax states like the ACT, where average salaries are higher.
Internal Links
For more context, Place a salary on the line to see how your pay compares, or check States and territories for regional averages.
Conclusion
Salary packaging is a legitimate way to reduce your tax and increase your net income. Understanding how it works alongside the national average and your personal circumstances can help you make informed decisions. Always consult a tax professional or your employer's HR department.