What Is Salary Packaging Australia?
Salary packaging, also known as salary sacrifice, is a common arrangement in Australian workplaces. It allows you to swap part of your pre-tax salary for benefits your employer provides. The Australian Tax Office (ATO) governs the rules, especially around fringe benefits tax (FBT). Understanding salary packaging is important because it can change how much tax you pay and, ultimately, how your take-home pay compares to the national full-time average.
How Salary Packaging Works
Under a salary packaging agreement, your employer reduces your gross salary by an agreed amount and uses that money to pay for benefits on your behalf. The benefit might be a car, additional super contributions, a laptop, or even childcare. Because the packaged amount is taken from your salary before tax, your taxable income drops. This can lower the tax you owe, especially if you are in a higher marginal tax bracket.
For example, if your annual salary is $108,352 (the national full-time average from the ABS Average Weekly Earnings, May 2026), and you package $15,000 in FBT-exempt items, your taxable income becomes $93,352. At the 30% tax rate (applying to income between $45,001 and $135,000 in 2026–27), you could save around $4,500 in tax plus the 2% Medicare levy. Your take-home pay would be higher than if you had not packaged, even though your gross salary is unchanged.
Types of Salary Packaging
Not all benefits are treated equally. The ATO classifies some as exempt from FBT, meaning the full value of the benefit is tax-free. Common exempt items include:
- Superannuation above the compulsory 11.5% (soon to rise) – contributions up to the concessional cap ($30,000 in 2026–27) are taxed at 15% instead of your marginal rate.
- Work-related items like laptops, phones, and protective clothing, if used primarily for work.
- Electric cars (subject to conditions) – exempt from FBT if the car value is below the luxury car tax threshold.
Other benefits, such as a car through a novated lease, are subject to FBT. The employer pays FBT, but they often pass the cost back to you through a lower salary reduction. This can reduce the net benefit, so it is important to compare the tax savings against the FBT cost.
How Salary Packaging Affects Your Position on the Average Line
The Place a salary on the line tool on this site compares your gross annual salary to the national full-time average of $108,352. Salary packaging does not change your gross salary – it only changes how much tax you pay. However, your effective compensation (salary plus benefits) can be higher than the average.
For instance, if you earn $90,000 (below the average) and package $18,000 in exempt benefits, your total compensation is $108,000 – very close to the average. Your take-home pay after tax might even exceed that of someone earning the average without packaging, depending on your tax bracket. This is why salary packaging is popular in industries like healthcare, education, and not-for-profits, where employers often offer generous packaging options.
Salary Packaging and the National 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. At this level, salary packaging is less common because the tax savings are smaller. However, some low-paid workers in charitable organisations can package up to $15,900 per year in FBT-exempt items (the public benevolent institution cap). This can significantly boost their take-home pay, moving them closer to the median all-employees figure of $74,100 (ABS Employee Earnings, August 2025).
State and Territory Differences
The national full-time average masks variation across states. For example, the Australian Capital Territory has the highest average at $119,090, while Tasmania has the lowest at $96,008. Salary packaging can be especially valuable in lower-average states, as it helps bridge the gap. If you are in Tasmania earning $96,000, packaging $12,000 in exempt benefits could bring your effective compensation to $108,000 – above the national average. See the States and territories page for more detail.
Tax Considerations
Salary packaging reduces your taxable income, which can move you into a lower tax bracket. The 2026–27 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 the Medicare levy of 2% (with possible reductions for low-income earners). By reducing your taxable income, you pay less tax overall. However, be aware that some packaged benefits may trigger FBT, which the employer may pass on. Always check the net benefit before signing an agreement.
Salary Packaging vs. Other Pay Concepts
It is important to distinguish salary packaging from other measures used on this site:
- National full-time average: $108,352 per year (ABS Average Weekly Earnings, May 2026). This is the line the tool uses.
- Full-time median: $90,532 (ABS Employee Earnings, August 2025). Half of full-time workers earn less than this.
- All-employees median: $74,100 (ABS Employee Earnings, August 2025). Includes part-time and casual workers.
- Minimum wage: $52,255 per year (Fair Work, from 1 July 2026).
Salary packaging does not change these published figures, but it can change your personal financial position relative to them.
Practical Steps
If you are considering salary packaging, start by checking what your employer offers. Many large employers have a salary packaging provider. You can use the Guides on this site to learn more about the process. Also, consult the ATO’s website for the latest FBT rules and caps. Remember that salary packaging is not free money – you are trading salary for benefits, so only package items you would otherwise pay for with after-tax dollars.
Summary
Salary packaging in Australia is a legitimate way to reduce your taxable income and increase your take-home pay. While it does not change your gross salary, it can make your effective compensation higher than the national full-time average of $108,352. Whether it pushes you above or below the line depends on your base salary, the type and amount of benefits you package, and your marginal tax rate. For many workers, especially those in not-for-profit sectors, salary packaging can turn a below-average salary into an above-average standard of living.