Salary Packaging and Salary Sacrifice Explained

What is salary packaging (and what is salary sacrifice)?🔗

Salary packaging and salary sacrifice are the same thing. The ATO calls it “salary sacrificing”; employers and the not-for-profit sector tend to say “salary packaging.” The core idea: instead of receiving your full salary in cash and then paying tax, you agree with your employer to redirect some of that salary into a benefit before tax is calculated. Your taxable income drops, so you pay less income tax. Your employer doesn't pay more and you don't get a pay rise, you just restructure how part of your existing salary is paid, and the tax treatment changes in your favour.

How does salary packaging actually save you tax?🔗

The saving comes from the difference between your marginal income tax rate and the tax rate on the packaged benefit. For super contributions, that rate is 15%. If your marginal rate is 30%, you save 15 cents in the dollar; at 37%, 22 cents; at 45%, 30 cents. For FBT-exempt benefits (eligible NFP and hospital workers), the saving is even bigger because no tax applies to the benefit at all.

Worked example. Alex earns $90,000 and sacrifices $10,000 into super. Taxable income drops from $90,000 to $80,000.

Alex saves $1,700 in tax overall and nearly doubles what goes into super. The trade-off: take-home cash drops by $6,800, and that money is locked in super, not in a bank account. See how the brackets drive this in our tax brackets guide.

What can you actually package?🔗

• Extra super contributions. The most common form, available to almost all employees. Taxed at 15% inside the fund instead of your marginal rate. The default for most private-sector workers.
• Novated car leases. A three-way arrangement where your employer makes lease payments from your pre-tax salary, bundling the car's costs into one deduction. FBT applies, but there's often still a saving, especially for higher earners. See our novated lease guide.
• Living expenses and meal entertainment (NFP and hospital workers only). Eligible charities, hospitals and community organisations have an FBT exemption that lets employees package everyday costs (rent, mortgage, bills) up to a cap, roughly $15,900 for NFP/charity and $9,010 for hospital employees, plus a meal entertainment cap around $2,650. Up to the cap, these are effectively tax-free.

Who benefits most from salary packaging?🔗

NFP and health sector workers are the biggest winners, full stop: the FBT-exempt living expenses caps redirect thousands of dollars of everyday spending into a tax-free benefit regardless of income. Higher-income earners benefit from super sacrifice because the saving scales with your marginal rate: about $150 saved per $1,000 sacrificed at 30%, $220 at 37%, and $300 at 45%. If you're on the 16% rate, super sacrifice alone is a small win, but NFP/hospital living-expenses packaging is still valuable because the FBT exemption applies to the benefit, not your tax rate.

The watch-outs you need to know🔗

• The concessional contributions cap is $30,000 in 2024-25, and it includes your employer's SG plus any salary sacrifice. Exceed it and the excess is taxed at your marginal rate plus a charge, wiping out the benefit. Check your remaining cap space first.
• Reportable fringe benefits. Non-super packaged benefits appear on your income statement and count in the income tests for Family Tax Benefit, Child Care Subsidy, HECS-HELP thresholds, and the Medicare Levy Surcharge. The tax saving can be partly offset by reduced government payments.
• Your cash salary drops. The benefit replaces some of your take-home cash. Make sure your budget works on the reduced amount before you sign, since some agreements lock you in for a year.
• Not all employers offer it. Living expenses packaging and novated leases depend entirely on your employer's setup, though most employers must allow super sacrifice.

How to set it up🔗

1. Check what's available: talk to your employer or HR about which benefits you can package.
2. Register with the provider if applicable (many NFP employers use Maxxia, RemServ, or AccessPay).
3. Choose your benefits and sign a salary sacrifice agreement, reading the change and exit terms carefully.
4. Your PAYG withholding adjusts to reflect your lower taxable income, visible in your next pay.
5. Review it annually, checking your concessional cap space if your salary or SG rate changes.

The bottom line: if you work for an eligible NFP or hospital and aren't packaging your living expenses, you're likely leaving real money on the table. For everyone else, super sacrifice is worth it once your marginal rate is 30% or above, as long as you stay under the $30,000 cap.

❓ Frequently asked questions🔗