Skip to main content

Salary packaging

Last updated:

Salary packaging is when you and your employer 'package' your salary into income and benefits. It's also known as salary sacrifice.

How salary packaging works

Salary packaging might help you pay less income tax by using part of your pre-tax salary to pay for approved benefits. Whether it's worth it depends on your income, the benefits available and any associated costs.

Common benefits are things like a car or a phone.

For example, you might package a salary of $100,000 so that you receive:

This reduces your taxable income and you can benefit as you may pay less income tax.

You need to arrange your salary package before you get paid. You can't package your salary after you've earned it.

Salary packaging is usually more effective for people on middle to high incomes (as their marginal tax rate is higher). You may want to get professional tax advice to work out if salary packaging is right for you.

See salary sacrificing for employees on the Australian Taxation Office (ATO) website for more information, including examples of different salary packaging scenarios. 

Things you can salary package

You can salary package benefits you would normally pay for with your after-tax income, such as computers, cars, childcare costs or super. There's no restriction on the types of benefits that can be salary packaged, but it depends on what your employer offers.

Employers will have to pay fringe benefits tax (FBT) on most packaged benefits. FBT payable is determined at the highest marginal income tax rate, including the Medicare levy. So, this will limit what is offered and whether it’s likely to be tax-effective.

Benefits fall into three categories: fringe benefits, exempt benefits and super.

Fringe benefits

Fringe benefits can include:

Your employer pays fringe benefit tax (FBT) on these benefits. See fringe benefits tax on the ATO website for more information.

Some not-for-profit organisations receive fringe benefits tax (FBT) concessions or exemptions. This means they provide fringe benefits for their employees without having to pay tax on those benefits, which can make salary packaging more attractive for their employees.

There is currently a FBT exemption for eligible electric cars and associated car expenses. There are a number of conditions that must be met for the FBT exemption to apply. Read more on the ATO website.

Learn more about how FBT generally applies to cars, novated leases, car parking and road tolls.

Exempt benefits

Exempt benefits include:

Your employer will currently not have to pay fringe benefits tax on these. However, from 1 April 2027 work-related items provided through a salary sacrifice arrangement will no longer be exempt and will be subject to FBT.

Super

Putting some of your pre-tax income into super has benefits for you and your employer. Your super fund will tax these contributions at 15% - the same as your employer's contributions. These are commonly known as 'salary sacrifice' contributions. 

There's a limit to how much you can add to your super before tax each financial year. This is known as the concessional contribution cap and includes your employer's super guarantee and any salary sacrificed contributions. If you go over the yearly limit of $32,500, you may need to pay extra tax.

See super contributions for more information on how this can benefit you.

How to find out more about salary packaging

Firstly, talk to your employer about whether you can salary package and if so, what things you can salary package.

Then, read more about salary packaging on the ATO website.

If you're not sure whether salary packing is right for you, you may want to seek financial advice, or speak with a registered tax agent. 

 

Join thousands of Australians and get tools, tips and calculators to help with your money - straight to your inbox each month.

Sign up