When Is Salary Sacrifice Not Worth It?
Salary sacrifice is a common way for Australian employees to reduce their taxable income by swapping part of their pre-tax salary for benefits like a car, additional super contributions, or electronic devices. The arrangement can reduce your taxable income, but it is not always worth it for everyone. This article explains when salary sacrifice is not worth it, especially when your pay sits against the national full-time average.
How salary sacrifice works
Under a salary sacrifice arrangement, you agree with your employer to reduce your pre-tax salary in exchange for a benefit. The benefit is paid by your employer, and the sacrificed amount is not subject to income tax, though fringe benefits tax (FBT) may apply. The tax saving depends on your marginal tax rate. For example, if you are in the 30% bracket ($45,001–$135,000), you save 30 cents for each dollar sacrificed, plus the 2% Medicare levy. But if you are in the 15% bracket, you save only 15 cents per dollar.
When salary sacrifice is not worth it
Low income earners
If your taxable income is below the tax-free threshold of $18,200, you pay no income tax, so salary sacrifice offers no tax benefit. Similarly, if you earn between $18,201 and $45,000, your marginal rate is 15% (plus Medicare levy), so the saving is small. For those earning near the national minimum wage of about $52,255 a year (based on $26.44 an hour, 38 hours a week), the tax saving is limited.
High income earners but near thresholds
If your income is just above a tax bracket threshold, sacrificing enough to drop into a lower bracket may save tax, but the benefit is marginal. For example, if you earn $136,000, you are in the 37% bracket. Sacrificing $1,000 would save 37% tax, but if you sacrifice $10,000 to drop to $126,000 (30% bracket), you save 37% on the first $1,000 and 30% on the rest, but you lose the benefit of the lower bracket on your entire income. The net saving may be small.
Impact on government benefits
Salary sacrifice reduces your reportable income, which can lower your eligibility for means-tested benefits such as Family Tax Benefit, Child Care Subsidy, or the Commonwealth Seniors Health Card. If your income is near a threshold, sacrificing even a small amount may cause a disproportionate loss of benefits, making the arrangement not worth it. Always check your situation with a financial adviser.
Fringe benefits tax (FBT)
Some benefits are subject to FBT, which your employer may pass on to you. If the FBT cost outweighs the tax saving, salary sacrifice is not worth it. For example, a car benefit may have a high FBT value, especially if you drive few kilometres. The ATO provides guidelines on FBT.
Where your pay sits against the national full-time average
The national full-time adult ordinary-time average is $2,083.70 a week, about $108,352 a year (ABS Average Weekly Earnings, May 2026). This is the line on this site. If your salary is below this average, salary sacrifice may still be beneficial if you are in the 30% bracket or above, but the savings are smaller than for those above the average. For example, someone earning $90,000 (below the average) saves 30% on sacrificed amounts, while someone earning $150,000 saves 37%.
The full-time median is about $90,532 (ABS Employee earnings, August 2025). The all-employees median is about $74,100. Men's full-time average is about $113,412, women's about $100,594. The national minimum wage from 1 July 2026 is $26.44 an hour, $1,004.90 a week, about $52,255 a year on 38 hours.
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. Place a salary on the line to see how your pay compares.
Tax brackets 2026–27
Resident tax rates for 2026–27: nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above that. Medicare levy 2% before reductions. These brackets determine the tax saving from salary sacrifice. If you are in the 30% bracket, you save 32 cents per dollar (including Medicare levy). In the 45% bracket, you save 47 cents per dollar.
When salary sacrifice is worth it
Salary sacrifice is generally worth it if you are in a high tax bracket and the benefit is not subject to FBT or the FBT is low. Additional super contributions are often worthwhile because they are taxed at 15% in the fund, and you save your marginal rate. For example, if you earn $120,000 and sacrifice $10,000 to super, you save $3,200 in tax (32% of $10,000) and pay only $1,500 in contributions tax, a net gain of $1,700.
Conclusion
Salary sacrifice is not worth it for low-income earners, those near benefit thresholds, or when FBT costs outweigh savings. Use the How the figures are set page to understand the data behind the averages. Compare your salary to the national full-time average to see if salary sacrifice makes sense for you.