Get more from your salary
Salary packaging or salary sacrificing in Australia reduces your
taxable income and so reduces the amount of income tax you pay.
Find out how it works and what can be packaged.
What is salary packaging / salary
Salary packaging (also known as salary sacrifice) is an
arrangement between you and your employer where you pay for some
items or services straight from your pre-tax salary. You can salary
package computers, cars, childcare and super, to name a few. This
can reduce your taxable income and put more money in your
Your employer then has to pay fringe benefits tax (FBT) on the
benefits provided to you. Some of these benefits will be listed on
your end of year payment summary and are used to assess your
Medicare levy surcharge, tax offsets, child support payments and
other government benefits.
You must enter into a salary sacrificing arrangement before you
earn the income. It can never be retrospective.
Who can salary package / salary sacrifice?
You can salary package if your employer is willing to offer
benefits. Most employers will offer salary sacrifice into super to
all employees, but may restrict who can package other benefits. Ask
your employer what they offer.
Salary sacrificing is usually more effective for people on mid
to high incomes.
What can be salary packaged / sacrificed?
There is no restriction on what can be packaged but the benefits
fall into three categories: fringe benefits, exempt benefits and
Fringe benefits can include:
- Salary sacrifice cars
- Health insurance
- Loans (usually for a car)
- School fees
- Childcare fees
- Other personal expenses
The value of the benefits you receive each financial year will
appear on your payment summary at tax time. You will not have to
pay tax or Medicare levy on this amount.
There are also some benefits such as entertainment and car
parking that will not appear on your end of year payment summary.
These are called non-reportable fringe benefits.
Exempt fringe benefits are benefits you receive that will not be
included in your payment summary. Your employer will not have to
pay fringe benefits tax on these.
Exempt benefits include:
- Portable electronic devices
- Computer software
- Protective clothing
- Tools of the trade
Salary sacrifice super
Redirecting some of your pre-tax income into super has benefits
for you and your employer. These salary sacrificed contributions
will be taxed by the super fund at 15%, the same as your employer's
contributions. For most people this will be lower than their
marginal tax rate. See contributing extra to super
for more information on how this can benefit you.
Your employer is not required to pay fringe benefits tax on
See the ATO for more details on salary sacrifice arrangements for
Case study: Jacqui salary packages her car
Jacqui has been offered a new job with a salary of around
$100,000 a year. As part of her contract negotiations Jacqui has
asked to salary package a new car. She has also asked if she can
make additional contributions to super.
Jacqui's new employer agrees to provide her with a fully
maintained vehicle in exchange for $20,000 of her proposed salary.
Jacqui also elects to salary sacrifice $5,000 a year into her super
This means Jacqui will have a taxable income of $75,000 per
year. The value of the motor vehicle will appear on her annual
payment summary. The extra amount sacrificed into super will appear
on Jacqui's annual payment summary as reportable employer super
Jacqui also negotiates with her employer that they will continue
to pay her super on a salary of $80,000 which is her cash salary
before super salary sacrifice.
Special rules for not-for-profits
Most employers will have to pay fringe benefits tax on the value
of benefits they provide to each employee, in excess of $2,000 per
year. Non-profit organisations are exempt from fringe benefits tax
up to certain limits, depending on the type of organisation.
This means not-for-profits can provide non-cash benefits to
employees more cost effectively than many other companies.
Not-for-profits can also provide cash benefits such as
entertainment and loan repayments from pre-tax income, which makes
salary packaging attractive to their employees.
Talk to your employer to see what salary
packaging they offer. You might want to get professional advice to
work out if salary sacrificing is right for you.
Last updated: 21 Feb 2017