Salary Sacrifice Australia 2026: How It Works and What You Can Sacrifice
๐ Quick Summary — Salary Sacrifice 2026-27
| What it is | Pre-tax salary redirected to approved benefits, reducing taxable income |
| Most common uses | Super contributions, novated lease (car), NFP living expenses |
| Super concessional cap (2026-27) | $32,500 total (employer SG + salary sacrifice) |
| NFP living expenses cap | $9,010 per FBT year (1 April – 31 March) |
| EV novated lease FBT | Exempt (below luxury car tax threshold ~$91,387) |
| Effect on HECS repayments | Does NOT reduce HECS repayment income — added back by ATO |
| Employer requirement | Voluntary — employer must agree and be set up to administer |
A colleague of mine had been salary sacrificing $10,000 per year into super for three years before she realised it wasn't reducing her HECS repayments the way she'd assumed. Someone told her it would lower her repayment income — it doesn't. The ATO adds reportable employer super contributions back to your income for HECS purposes. She wasn't worse off, but she'd been making the arrangement partly for a reason that didn't exist.
Salary sacrifice genuinely can save you thousands per year — but only if you understand how each benefit type actually works. Here's a clear breakdown of what's worth sacrificing, what to watch out for, and how to calculate whether it makes sense for your situation.
How Salary Sacrifice Works
Salary packaging allows you to agree with your employer to receive certain non-cash benefits instead of an equivalent amount of your salary. By doing so, you reduce your assessable income and pay less income tax, while the benefit may attract reduced or exempt FBT treatment.
In plain terms: instead of receiving $X in salary (which is taxed at your marginal rate), you redirect part of it to an approved benefit. Because the benefit is paid from pre-tax income, you effectively get more value from each dollar than if you bought the same thing from your after-tax pay.
What You Can Salary Sacrifice
Most popular option. Redirected salary goes into your super fund and is taxed at 15% — far below most marginal rates. Cap: $32,500 total concessional (incl. employer SG).
Three-way agreement between you, employer, and finance company. Lease payments and running costs come from pre-tax salary. EVs exempt from FBT below the luxury threshold.
Laptops, tablets, and smartphones used primarily for work can be salary sacrificed FBT-free. Limited to one device per FBT year per category.
Employees of hospitals, charities, and not-for-profits can salary sacrifice everyday living expenses (rent, mortgage, groceries) up to $9,010 per FBT year tax-free.
Work-related education expenses can sometimes be salary sacrificed, though FBT treatment depends on the direct connection to your current role.
Gym memberships and health programs are fringe benefits — FBT applies at the full rate. These are generally not tax-effective for most employees.
Salary Sacrifice into Super — The Most Common Strategy
Directing extra salary into super is the most widely used salary sacrifice arrangement because salary sacrificed super contributions under an effective salary sacrifice arrangement are considered to be employer contributions. These are not fringe benefits if your employer pays them to a complying super fund. This means no FBT applies — the contribution goes into super and is taxed at just 15%.
The tax saving depends on your marginal rate:
| Income bracket | Marginal rate (incl. Medicare) | Tax on salary sacrifice into super | Tax saving per $1,000 sacrificed |
|---|---|---|---|
| $45,001 – $135,000 | 34.5% | 15% | $195 |
| $135,001 – $190,000 | 39% | 15% | $240 |
| Above $190,000 | 47% | 15% | $320 |
๐ฐ Salary Sacrifice Super Calculator — 2026-27
Estimate your tax saving from salary sacrificing into super.
Taxable income (before)
$100,000
Taxable income (after)
$90,000
Tax without sacrifice
$24,167
Tax after sacrifice
$20,717
Tax on super (15%)
$1,500
Employer SG (12%)
$12,000
counts toward $32,500 cap
Concessional cap used
$22,000 / $32,500
✅ Within cap — headroom available
Based on 2026-27 ATO tax rates. SG calculated at 12% of salary. Does not include Medicare Levy Surcharge or HECS impact. Estimate only — consult a tax agent for personalised advice.
Novated Lease — Salary Sacrificing a Car
A novated lease is a three-way car financing arrangement between you (the employee), your employer, and the finance company. Under this structure, your employer takes on the obligation of making lease repayments on your behalf, deducting the lease costs from your salary before income tax is applied.
The lease payments and running costs — fuel, servicing, tyres, insurance, registration — all come out of your pre-tax salary. Because the lease payments come out of your pre-tax income, your taxable income is reduced — that means you pay less income tax each pay cycle. The higher your marginal tax rate, the greater the benefit.
Electric vehicles — the FBT exemption
From 1 July 2022, eligible electric vehicles provided through a novated lease have been exempt from FBT, meaning the entire lease and running cost can be paid from pre-tax salary with no FBT liability. Eligible electric vehicles must have a value below the luxury car tax threshold for fuel-efficient vehicles — currently approximately $91,387.
As part of the 2026-27 Budget, the Government will transition the arrangements to support electric cars to a permanent 25% fringe benefits concession rather than a full exemption going forward. The details of this transition are being finalised — check the ATO website for current EV novated lease guidance as legislation is passed.
NFP Salary Packaging — The Hidden Gem
If you work for a hospital, public health service, registered charity, or other not-for-profit organisation, you may be eligible for salary packaging benefits that aren't available to private sector employees. The most valuable is the ability to package living expenses — rent, mortgage repayments, groceries, utility bills — up to $9,010 per FBT year, completely free of FBT.
On a $80,000 salary at a 34.5% marginal rate, packaging $9,010 in living expenses saves approximately $3,108 in tax per year — real money for healthcare workers and charity employees who often don't realise this benefit is available to them.
What Salary Sacrifice Does NOT Reduce
Salary sacrifice into super reduces your taxable income, but the ATO adds reportable employer super contributions back when working out your HECS/HELP repayment income — so sacrificing into super does not reduce your compulsory repayment. FBT-exempt items like EVs via novated lease work the same way: the reportable fringe benefit amount is still included in your repayment income.
Similarly, salary sacrifice doesn't reduce:
- Child support assessments (which use adjusted taxable income)
- Family Tax Benefit and Child Care Subsidy income calculations
- Private health insurance surcharge calculations
- Medicare Levy Surcharge threshold assessments
Common Questions
Related Articles
Sources: ATO — Salary Sacrificing for Employees, ATO — Fringe Benefits Tax
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