What is salary sacrifice?
Salary sacrifice is a pre-agreed swap: you take a lower cash salary and your employer provides part of your package in another form, such as super contributions or a novated lease. The attraction is that some of those benefits are funded from pre-tax salary, which can reduce the tax you pay.
The timing matters. This is not the same as buying something yourself and asking to be reimbursed later. The arrangement needs to be in place before you earn the salary being packaged.
If you want the broader context for tax brackets, Medicare levy, and what counts as taxable income, keep the Australian income tax guide nearby as you read this one.
Example: If you earn $90,000 and salary sacrifice $10,000 into super, that $10,000 is directed to the fund instead of being paid to you as cash salary. In broad terms, you are then taxed on a lower salary amount while the contribution is taxed in the fund at 15%.
How salary sacrifice saves tax
The value comes from the spread between your marginal tax rate and the way the packaged benefit is taxed. For super, the comparison is usually straightforward: money that would have been taxed at your marginal rate goes into the fund at 15%.
| Income | Marginal Rate | Super Tax Rate | Saving per $1k sacrificed |
|---|---|---|---|
| $45k–$135k | 30% | 15% | $150 |
| $135k–$190k | 37% | 15% | $220 |
| $190k+ | 45% | 15% | $300 |
| $250k+ (Div 293) | 45% | 30% | $150 |
If you are weighing super against other long-term contribution strategies, the superannuation contributions guide goes deeper on caps, carry-forward rules, and when extra contributions stop being attractive.
Types of salary sacrifice in Australia
Superannuation
Most popular- ·Concessional cap $30,000/year (includes employer SG at 12%)
- ·Contributions taxed at 15% instead of your marginal rate
- ·Division 293 tax applies if income + super > $250,000 (effective rate 30%)
- ·Often the simplest option if the goal is long-term retirement savings
Novated Lease (Car)
EV FBT-exempt- ·Bundle car repayments + running costs into pre-tax salary
- ·Eligible EVs under $91,387 can offer the clearest tax benefit because they are exempt from FBT
- ·Petrol/diesel cars attract FBT (~20% of car value per year)
- ·At lease end: pay residual, re-lease, or hand back
Healthcare / Not-For-Profit Packaging
Hospital staff- ·For employees of public hospitals, ambulances, and certain NFPs
- ·$9,010 FBT-exempt cap for living expenses (rent, mortgage, bills)
- ·Additional $2,650 for meal entertainment
- ·The value can be meaningful, but the exact benefit depends on your employer's packaging rules
Work Equipment (Laptop, Phone, Tools)
FBT-exempt- ·Laptops, tablets, phones, tools — FBT-exempt if primarily for work
- ·Must be used >50% for work purposes
- ·One laptop and one phone per FBT year (April–March)
- ·Effective 30–45% discount depending on marginal rate
Who benefits most?
High income earners ($90k+)
At 30%+ marginal rate, super sacrifice saves 15c per dollar. The higher your rate, the bigger the saving.
Healthcare / NFP workers
The $9,010 FBT-exempt living expense cap is unique to this sector — it's like a ~$3,000–$4,000 tax cut unavailable to most employees.
Anyone wanting a new EV
The FBT exemption for EVs under $91,387 can make novated leasing noticeably more competitive than buying outright or using a standard car loan.
Low income earners (<$37k)
LISTO already reduces super tax to near zero. And lower marginal rates mean smaller savings on other sacrifice types.
Short-term employees
Novated leases become complicated if you change jobs. Salary sacrifice works best with stable employment.
Near retirement (super access)
Sacrificing into super only makes sense if you can access it. Preservation age is 60 — locking money away has a real cost if you need it.
Salary sacrifice vs other tax strategies
| Strategy | How it reduces tax | Complexity | Best for |
|---|---|---|---|
| Salary sacrifice (super) | Reduces taxable income; super taxed at 15% | Low — set and forget | Most employees |
| Personal deductions | Reduces taxable income at marginal rate | Low — claim at tax time | Anyone with work expenses |
| Negative gearing | Investment losses offset income | High — needs property/shares | Investors |
| Salary sacrifice (novated) | Pre-tax car costs + FBT exemption for EVs | Medium — employer required | EV buyers, frequent drivers |
Common salary sacrifice mistakes
Exceeding the concessional cap
Sacrificing more than $30,000 total (including employer SG) means the excess is taxed at your marginal rate minus the 15% already paid — plus an excess concessional contributions charge.
Forgetting about cash flow
Salary sacrifice reduces your take-home pay. If you're applying for a mortgage, lenders assess your take-home pay — a large sacrifice could reduce your borrowing capacity.
HECS and super sacrifice
Sacrificing into super does NOT reduce your HECS repayment threshold. Your Repayment Income adds back reportable employer super contributions, so HECS is calculated on your original income. If this is a deciding factor for you, read the HECS-HELP repayment guide.
Assuming your employer offers it
Salary sacrifice requires employer participation. Don't assume it's available — ask HR. Many smaller employers don't have packaging arrangements set up.
Novated lease and job changes
If you leave your job, you're still liable for the lease. The car becomes your personal responsibility. Always have a plan before committing to a 3-5 year lease. The novated lease guide walks through the handover and exit risks in more detail.
Frequently asked questions
Does salary sacrifice reduce my HECS repayment?
Salary sacrifice into super reduces your taxable income but adds a reportable employer super contribution, so the effect on HECS repayment income depends on the amounts. For FBT-exempt items like EVs via novated lease, the reportable fringe benefit amount is still included in your HECS repayment income — so these do not reduce your repayment obligation.
Can my employer refuse salary sacrifice?
Yes. Salary sacrifice is voluntary for both parties. Your employer must agree to the arrangement. Larger employers and government agencies typically offer it; smaller businesses may not.
What is the concessional super contributions cap for 2025–2026?
The concessional cap is $30,000. This includes employer SG (12%), any salary sacrifice, and personal deductible contributions. Exceeding the cap means excess is taxed at your marginal rate (less the 15% already paid).
What are FBT-exempt salary sacrifice items?
FBT-exempt items include: electric vehicles under $91,387, laptops and tablets (primarily for work), work-related tools and equipment, and healthcare benefits for eligible hospital/ambulance staff (up to $9,010/year).
What is the minimum income to benefit from salary sacrifice?
For super, you need a 30%+ marginal rate ($45,001+) to save 15c per dollar. Below that, LISTO offsets some tax, but the benefit is smaller. For FBT-exempt items like laptops and EVs, any income earner benefits.
When the choice is close, it helps to compare the packaged benefit with the plain-cash alternative in our novated lease calculator or super salary sacrifice calculator.
