What Can You Salary Sacrifice? A Practical Guide to Tax Savings

Ever heard of salary sacrificing? It's a clever (and completely legal) way to pay for certain things straight from your paycheque before the taxman takes his cut. In short, it’s a formal deal you make with your employer to get some of your salary as benefits instead of cash. The big win? It can lower your taxable income, which often means paying less tax.

What Is Salary Sacrificing and How Does It Work?

Let's break it down. Picture your total salary as a pie. Normally, the Australian Taxation Office (ATO) comes along and takes its slice before you get what's left. Salary sacrificing—sometimes called salary packaging—lets you earmark a piece of that pie for specific, approved benefits before the ATO figures out your tax. Because you’ve set that piece aside, the pie the ATO looks at is now smaller. A smaller pie means a smaller tax slice. You still get the full value of what you earned, but part of it shows up as a benefit—like extra superannuation contributions or a novated car lease—instead of just cash in the bank. At its core, it’s a simple idea: you're turning taxable cash into a tax-effective benefit. By reducing your income on paper, you could drop into a lower tax bracket, keeping more of your hard-earned money in your pocket.

A Simple Before-and-After Example

Say you earn an annual salary of $90,000. Without any arrangements, you’d be taxed on that full amount. Now, imagine you decide to salary sacrifice $10,000 directly into your super fund. Just like that, your taxable income drops to $80,000. At that income your marginal rate is 30% plus the 2% Medicare levy, so you’d pay about $3,200 less income tax. Your fund pays 15% contributions tax ($1,500) on the $10,000, which leaves you roughly $1,700 better off for the year, all while giving your retirement nest egg a healthy boost. Add your employer’s 12% Superannuation Guarantee ($10,800) and your concessional contributions total $20,800, comfortably under the cap.

Key Takeaway: This isn't something you can do on a whim. The arrangement has to be locked in with your employer before you've actually earned the income. You can't sacrifice money that's already landed in your bank account.

In short, by "sacrificing" a portion of your salary, you're doing two things at once: shrinking your taxable income and gaining a valuable non-cash benefit.

Before you sign a salary packaging agreement, our personal tax advice can show what it would actually save you once super contribution caps and reportable fringe benefits are taken into account.

Supercharge Your Retirement with Superannuation Contributions

Without a doubt, one of the smartest and most popular ways to use salary sacrifice is to channel pre-tax dollars straight into your super. It’s a powerful strategy that puts your retirement savings on the fast track, thanks to some serious and immediate tax advantages. Think of it like this: instead of your money being taxed at your regular marginal rate (which could be as high as 45%, plus the Medicare levy), it’s taxed at a much friendlier concessional rate of just 15% once it hits your super fund. That’s a massive upfront discount, meaning more of your hard-earned cash is working for you from day one. To put it in real terms, if you earn $150,000 and sacrifice $5,000, you avoid paying the 37% tax rate on that income and pay 15% in the fund instead, pocketing an extra $1,100 in tax savings for the year (a little more once you count the Medicare levy).

Staying Within The Limits

To get the most out of this strategy, you need to play by the rules. The government sets annual limits on how much you can contribute this way. Your salary sacrificed contributions, along with your employer’s mandatory Superannuation Guarantee payments, all count towards your concessional contributions cap: $30,000 for 2025–26 and $32,500 from 1 July 2026. Go over this cap, and you could face extra tax, completely wiping out the benefits you were aiming for. High earners should also know about Division 293 tax: if your income plus concessional contributions is more than $250,000, an extra 15% applies to the contributions above that threshold, so they're effectively taxed at 30% rather than 15%. For a deeper dive on how these caps work, you can check out our detailed guide on the Concessional Contributions Cap.

A Critical Check To Make

Before you jump in, there’s one crucial conversation you must have with your employer.

Since 1 January 2020, the law requires your employer to calculate your Superannuation Guarantee (SG) on your earnings before the sacrificed amount is taken out, and your salary sacrificed contributions can't count towards the employer's SG. Under Payday Super (from 1 July 2026), SG is worked out on 'qualifying earnings', which still include salary you sacrifice into super. A salary sacrifice arrangement can't reduce the SG you’re entitled to.

Even so, get into the habit of checking your payslips and super statements to confirm you’re still receiving your full, legally required super payments on top of your own voluntary contributions.

Driving Down Your Tax with a Novated Car Lease

Aside from your super, a novated car lease is easily one of the most powerful and popular salary sacrifice benefits out there. Think of it as a three-way agreement between you, your employer, and a finance company. This setup lets you pay for a new or used car—and all its running costs—straight from your pre-tax pay. This simple arrangement can slash your taxable income, potentially saving you thousands of dollars every year. And here's a common myth busted: the car is registered in your name and you can use it 100% for personal trips. It doesn't have to be for work at all.

How a Novated Lease Simplifies Car Ownership

One of the biggest draws of a novated lease is just how simple it makes everything. All your major car expenses are bundled into one single, predictable deduction from your payroll. The big win? Because it’s coming from your pre-tax salary, you often end up paying less overall. Your bundled payments can cover a whole range of costs:

• The lease payments for the car itself
• Fuel or electricity costs
• Comprehensive insurance
• Registration and CTP (Compulsory Third Party)
• Scheduled servicing and maintenance
• Even tyre replacements

This "all-in-one" approach makes budgeting a breeze and gets rid of the headache of juggling multiple bills. On top of that, you get the benefit of GST savings on the car’s purchase price and on its running costs.

Managing these expenses is often made even easier with a fuel card, which usually comes as part of the package, and you may get access to fleet discounts when buying the car. Keep in mind that a novated car is a fringe benefit. To avoid Fringe Benefits Tax (FBT), most packages use the employee contribution method: part of the running costs is paid from your after-tax pay, so not everything comes out of pre-tax income. Eligible electric cars (priced under the luxury car tax threshold for fuel-efficient vehicles) are exempt from FBT, although the benefit still appears as a reportable fringe benefit on your income statement. Plug-in hybrids lost that exemption from 1 April 2025 unless the arrangement was already in place. If you're weighing up your options, taking a look at which motor vehicle expenses the ATO allows can give you a much clearer picture of the potential savings.

Exploring Other Common Fringe Benefits

While superannuation and novated car leases tend to get all the attention, they’re really just the tip of the iceberg when it comes to salary sacrificing. There's a whole world of other items, known as fringe benefits, that can be packaged into your salary, allowing you to pay for everyday essentials with your pre-tax income. The most important thing to remember is that availability hinges entirely on your employer’s policy. What one company offers can be completely different from another. For instance, employees at certain not-for-profit organisations (like public benevolent institutions) often get access to a much wider range of benefits thanks to more generous tax rules. Ultimately, these benefits are designed to cover both work-related and personal expenses, chipping away at your taxable income and giving you more cash in your pocket.

Common Items You Can Package

So, what else is on the menu? Many employers allow you to package items that are essential for your job, like laptops and mobile phones, particularly if they are used primarily for work. This is a fantastic way to fund necessary tech upgrades without feeling the full pinch in your post-tax paycheque. Beyond the tools of the trade, some policies extend to your personal and family life. You might find you can salary sacrifice expenses such as:

• Self-education fees that are directly related to your current role.
• Professional memberships and industry journal subscriptions.
• Financial advice from a qualified professional.
• Childcare, which is FBT-exempt only when it's provided at your employer's own business premises. Packaging outside childcare fees attracts FBT, so it usually only pays off with an FBT-concessional employer such as a PBI or public hospital.

It’s crucial to know that providing these benefits can trigger Fringe Benefits Tax (FBT) for your employer at 47% of the grossed-up value, and most employers pass that cost back to you through the package. Packaging only saves tax when the benefit is FBT-exempt, reduced by the 'otherwise deductible' rule, or provided by an FBT-concessional employer. Understanding what FBT is and how it works is essential, as it heavily influences which benefits a company is willing to put on the table for its staff.

To give you a clearer picture, the table below breaks down some of the most common fringe benefits you might come across.

Common Salary Sacrifice Items at a Glance

This table offers a quick summary of the items you can often package, how they work, and who they’re best suited for.

Benefit ItemHow It Works (Pre-tax)Key Tax ConsiderationBest Suited For

Laptop/Portable Device

The cost of a work-related laptop is deducted from your pre-tax salary.

Generally FBT-exempt if the device is primarily used for work. Usually one item of each type per FBT year (no limit for employers with turnover under $50 million). Not exempt under salary sacrifice from 1 April 2027.

Professionals who need up-to-date technology for their job.

Mobile Phone

Your phone plan or the cost of the handset can be paid from pre-tax income.

Also typically FBT-exempt if used mainly for work purposes. Not exempt under salary sacrifice from 1 April 2027.

Anyone who relies on their mobile for work calls and communication.

Professional Memberships

Annual fees for industry associations are paid directly from your salary.

Usually little or no FBT, because the fee would otherwise be deductible to you. You can't also claim it as a deduction yourself.

Individuals in industries requiring professional accreditation.

Remember, this is just a starting point. Always check your employer's specific salary packaging policy to see the full range of benefits available to you. Changes from 1 April 2027: laptops, phones, tools and other work-related items provided under salary sacrifice will no longer be FBT-exempt, and the 'otherwise deductible' rule won't apply to salary sacrificed work expenses covered by the new standard deduction, such as self-education and home office costs. If you package any of these, talk to your employer before the 2027–28 FBT year starts.

What You Need to Know Before You Start

Jumping into a salary sacrifice arrangement can be a fantastic financial move, but it really pays to understand the rules of the road first. The single most important rule is all about timing: the arrangement must be formally documented with your employer before you’ve earned the income you intend to sacrifice. You simply can't package money that has already been paid to you. Beyond this golden rule, it's vital to see the bigger picture. Lowering your taxable income might sound great on the surface, but it can have flow-on effects on other parts of your financial life.

This is because many government calculations don't just look at your taxable income. They add back your reportable super contributions (which include salary sacrificed super) and reportable fringe benefits (shown on your income statement when their taxable value is more than $2,000).

This adjusted figure is the one that really counts when assessing things like:

• Your HELP debt repayment obligations
• Child support payments
• Eligibility for certain Centrelink or family assistance benefits
• The Medicare levy surcharge

Understanding the Full Financial Impact

Before you commit, take the time to dig into your employment contract to get clear on your company's specific policies. Because everyone's situation is unique, getting professional advice is one of the smartest steps you can take. A registered tax agent or licensed financial adviser can help you properly weigh the tax benefits against any potential impacts, making sure your salary sacrifice strategy truly works for you and supports your long-term goals—without any unwelcome surprises down the line.