What is Salary Sacrifice in Australia?
Salary sacrifice is a workplace arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits provided by your employer. The sacrificed amount is not included in your assessable income, reducing the tax you pay. This can increase your take-home pay, but the rules are complex and depend on the type of benefit.
How Salary Sacrifice Works
You and your employer sign a salary sacrifice agreement. Your employer then deducts the sacrificed amount from your gross salary before calculating PAYG withholding. The benefit you receive – such as additional super contributions, a car, or a laptop – is provided by your employer. The ATO treats the benefit as a fringe benefit, and your employer may have to pay Fringe Benefits Tax (FBT) unless an exemption applies.
Common salary sacrifice items include:
- Additional superannuation contributions – up to the concessional cap ($27,500 for 2026–27). These are not subject to FBT.
- Novated lease cars – a three-way agreement between you, your employer, and a financier. FBT applies unless you use the car mainly for work.
- Electronic devices – laptops, tablets, phones – if used primarily for work, they may be FBT-exempt.
- Professional memberships and subscriptions – often exempt if related to your employment.
Tax Benefits and Take-Home Pay
The key advantage is that the sacrificed amount is not taxed as income. For example, if you earn the national full-time average of $108,352 (ABS Average Weekly Earnings, May 2026), your marginal tax rate is 30% plus 2% Medicare levy. Sacrificing $10,000 into super reduces your taxable income to $98,352, saving you $3,000 in tax plus $200 in Medicare levy. Your take-home pay increases by that amount, though the super contribution is preserved for retirement.
If you sacrifice a car with a taxable value of $8,000, your employer may pay FBT on that amount. However, if the car is used for work purposes, the FBT liability may be reduced. Your take-home pay may still be higher than if you had purchased the car with after-tax dollars.
Salary Sacrifice and the National Average
The national full-time average of $108,352 is a useful benchmark. If you salary sacrifice, your cash salary appears lower, but your total remuneration package (cash plus benefits) may be higher. The ABS Average Weekly Earnings figure is based on ordinary-time earnings before any sacrifice, so your position on the salary line remains unchanged in terms of your contract. However, your net pay after tax and sacrifice may differ significantly.
For someone on the full-time median of $90,532, sacrificing $5,000 into super could reduce taxable income to $85,532, saving $1,500 in tax (30% bracket). This brings your net pay closer to that of someone earning the average without sacrifice.
State Averages and Considerations
Salary sacrifice can be more beneficial in states with higher average earnings, where marginal tax rates are higher. For example, the ACT average is $119,090, placing many workers in the 30% or 37% bracket. In Tasmania ($96,008), the benefit is smaller. Check your state's average on the states and territories page.
Minimum Wage and Salary Sacrifice
The national minimum wage from 1 July 2026 is $26.44 per hour, or $52,255 per year on a 38-hour week. At this level, the marginal tax rate is only 15% (plus Medicare). Salary sacrifice may still offer some benefit, but the tax saving is modest. Additionally, salary sacrifice cannot reduce your cash pay below the minimum wage for the hours worked – your employer must ensure you still receive at least the minimum wage in cash.
Important Rules and Limits
- Concessional super cap: $27,500 per year. Excess contributions are taxed at your marginal rate.
- FBT: Many benefits attract FBT at the top marginal rate (47% including Medicare). Your employer may pass this cost to you via a reduction in your salary package.
- Reportable fringe benefits: If the total taxable value of fringe benefits exceeds $2,000 in a year, it appears on your payment summary and may affect your Medicare Levy Surcharge or family tax benefits.
- Superannuation Guarantee: Your employer must still pay the SG (11.5% from 1 July 2026) on your ordinary-time earnings, not the sacrificed amount. So salary sacrifice does not reduce your SG contributions.
Example Take-Home Calculation
Consider a resident earning the national full-time average of $108,352. Without salary sacrifice, their tax (using 2026–27 rates) is approximately:
- $0 on first $18,200
- 15% on $26,800 ($4,020)
- 30% on $63,352 ($19,005.60)
- Plus Medicare levy 2% on $108,352 ($2,167.04)
- Total tax and Medicare: $25,192.64
- Net take-home: $83,159.36
If they salary sacrifice $10,000 into super, taxable income becomes $98,352:
- Tax: $0 + $4,020 + 30% on $53,352 ($16,005.60) = $20,025.60
- Medicare: $1,967.04
- Total: $21,992.64
- Net take-home: $76,359.36 (cash) plus $10,000 in super = total remuneration $86,359.36, which is higher than the non-sacrifice net of $83,159.36.
Note: This is a simplified example. Actual tax may vary based on offsets and other factors.
Common Misconceptions
Some people think salary sacrifice always increases take-home pay, but that depends on the benefit and FBT. Others believe it reduces your super guarantee – it does not, as SG is based on ordinary-time earnings. Also, salary sacrifice cannot be used to reduce your pay below the minimum wage. Always read the agreement carefully.
Is Salary Sacrifice Right for You?
Salary sacrifice can boost your overall remuneration, but it reduces your cash salary, which may affect borrowing capacity or eligibility for some government benefits. Always consider your personal circumstances and consult a tax professional. For more on how salary figures are compiled, see How the figures are set. For general guides, visit Guides.