What Is Salary Sacrifice and How Does It Save You Tax?
A plain-English explainer of salary sacrifice in Australia — how it works, what you can sacrifice, and the tax savings it can unlock for everyday employees.
By AvaShort answer
Salary sacrifice (also called "salary packaging") is an arrangement where your employer spends some of your pre-tax income on things like extra super contributions, a car, or work-related expenses — before you pay income tax on it. Because that money never counts as your taxable income, you pay less tax.
It's most common for super contributions, where it's also called "concessional contributions" and taxed at just 15% inside super instead of your marginal rate.
How salary sacrifice works
Normally your employer pays you $100, you pay tax on it at your marginal rate (say 32.5%), and you keep $67.50. With salary sacrifice, your employer takes $100 of your pre-tax salary and puts it toward an agreed expense — for example, $100 into your super fund. You only pay 15% tax on that $100 inside super, so $85 goes to your retirement.
| Scenario | You get | Tax paid |
|---|---|---|
| Take $100 as cash (32.5% bracket) | $67.50 | $32.50 |
| Sacrifice $100 into super | $85 in super | $15 |
You save $17.50 in tax, and your super grows faster. The trade-off is you can't access that money until retirement.
What can you salary sacrifice?
The most common and widely available option is super contributions. Many employers also offer:
- Novated car leases
- Work-related laptops or devices
- Parking and public transport
- Childcare (some not-for-profit employers)
Some items are FBT-exempt (like super) and some trigger Fringe Benefits Tax, which changes the maths.
The cap to watch
For super, the concessional contributions cap is $30,000 in 2025–26 (this includes your employer's 11.5% Super Guarantee). If you go over, the excess is added to your income and taxed at your marginal rate.
Is salary sacrifice right for you?
It works best if:
- You're in the 30%+ tax bracket
- You can afford to lock money away until retirement
- Your employer offers it (not all do — ask payroll)
Salary sacrifice is one of the simplest ways to reduce your tax bill while building long-term wealth. If you're juggling receipts and work expenses too, keeping organised through the year makes tax time far smoother — tools like AusTax AI can help with that part.
Frequently asked questions
What is salary sacrifice in simple terms?
Salary sacrifice means your employer pays for certain things out of your pre-tax income instead of giving you the cash. This lowers your taxable income, so you pay less tax on that portion.
Does salary sacrifice affect my super guarantee?
Generally no. The Super Guarantee (11.5% in 2025–26) is calculated on your ordinary time earnings, not your salary-sacrificed amount. So sacrificing doesn't reduce what your employer must pay into super.