Salary Sacrifice Guide: Boost Your Super & Cut Tax
IntuitiveCalc Team
Financial Content Specialist
Salary sacrifice is one of the most effective tax-saving strategies available to Australian employees. Here's how to make it work for you.
What is Salary Sacrifice?
Salary sacrifice (also called salary packaging) is an arrangement where you agree to receive less take-home pay in exchange for your employer providing benefits from your pre-tax salary. The main advantage is that these benefits are taxed at a lower rate than your marginal tax rate.
How It Works
Normal pay: Earn $100 → Pay 32.5% tax → Keep $67.50
Salary sacrifice to super: Earn $100 → Pay 15% contributions tax → Super gets $85
Savings: $17.50 more goes toward retirement per $100 sacrificed
Types of Salary Sacrifice
1. Superannuation Contributions
The most common form of salary sacrifice. Pre-tax contributions to your super are taxed at just 15% (instead of your marginal rate of up to 45%).
| Income | Marginal Rate | Super Tax | Tax Saved per $1,000 |
|---|---|---|---|
| $45,001 - $135,000 | 32.5% | 15% | $175 |
| $135,001 - $190,000 | 37% | 15% | $220 |
| $190,001+ | 45% | 15%* | $300 |
*Individuals earning over $250,000 pay an additional 15% Division 293 tax on contributions
2. Novated Lease (Cars)
A three-way agreement between you, your employer, and a finance company to lease a car using pre-tax dollars. Benefits include:
- GST savings (your employer claims the GST)
- Pre-tax payments reduce taxable income
- Running costs (fuel, insurance, rego, servicing) included
- Potential FBT exemption for electric vehicles
Example: Novated Lease Savings
Car: $45,000 new vehicle, 5-year lease
Monthly cost (including running costs): $1,200
Pre-tax deduction from $100,000 salary: $14,400/year
Tax saved (32.5% bracket): $4,680/year
Plus GST savings: ~$4,090 (one-time)
3. Laptops and Electronic Devices
You can salary sacrifice work-related portable electronic devices (laptops, tablets, phones) that are primarily used for work. The device must be:
- Portable (laptops, not desktops)
- Primarily used for work purposes
- Limited to one per FBT year (unless items are similar)
4. Other Salary Packaging Options
| Benefit Type | FBT Status | Best For |
|---|---|---|
| Super contributions | Exempt | Everyone wanting retirement savings |
| Novated lease | Concessional | Anyone needing a car |
| Laptop/tablet | Exempt | Work-from-home employees |
| Meal entertainment | Capped | NFP/hospital employees |
| Living expenses | Capped | NFP/hospital employees |
| Electric vehicles | Exempt* | EV buyers (great savings) |
*EVs below the luxury car limit ($91,387 for 2024-25) are FBT-exempt
Superannuation Salary Sacrifice in Detail
Concessional Contribution Cap
Total concessional (before-tax) contributions are capped at $30,000 per year (2024-25). This includes:
- Employer Super Guarantee contributions (11.5%)
- Salary sacrifice contributions
- Personal contributions claimed as a tax deduction
Example: Maximum Salary Sacrifice
Carry-Forward Contributions
If you have unused concessional cap from previous years (going back to 2018-19), you can carry it forward and use it in the current year. Requirements:
- Your total super balance at June 30 of the previous year was under $500,000
- You have unused cap amounts from 2018-19 onwards
- Unused amounts expire after 5 years
Carry-Forward Opportunity
If you had a lower income in previous years and didn't maximize contributions, you may have significant carry-forward capacity. Check your MyGov account to see your available amounts.
Tax Savings Calculations
Here's how much you could save by salary sacrificing $10,000 to super at different income levels:
| Taxable Income | Marginal Rate | Tax on $10k Income | Tax in Super | Tax Saved |
|---|---|---|---|---|
| $50,000 | 32.5% | $3,250 | $1,500 | $1,750 |
| $100,000 | 32.5% | $3,250 | $1,500 | $1,750 |
| $150,000 | 37% | $3,700 | $1,500 | $2,200 |
| $200,000 | 45% | $4,500 | $1,500 | $3,000 |
Excludes Medicare Levy. $250k+ earners also pay Division 293 tax (additional 15%).
Special Sectors: NFP & Healthcare
Employees of not-for-profit organizations and public hospitals can access additional salary packaging benefits with FBT exemptions or caps.
Public Benevolent Institutions (PBIs)
PBI Employee Benefits
- Up to $15,900 in living expenses (FBT-free)
- Additional $2,650 meal entertainment (FBT-free)
- Can be used for rent, mortgage, groceries, utilities
- Tax savings: up to $6,000+/year
Public Hospitals
Hospital Employee Benefits
- Up to $9,010 in living expenses (FBT-free)
- Additional $2,650 meal entertainment (FBT-free)
- Can be used for rent, mortgage, groceries, utilities
- Tax savings: up to $4,000+/year
Electric Vehicle Salary Sacrifice
Since July 2022, electric vehicles below the luxury car tax threshold ($91,387 for 2024-25) are exempt from Fringe Benefits Tax when salary sacrificed. This makes EVs incredibly tax-effective.
EV Salary Sacrifice Example
Vehicle: Tesla Model 3 RWD ($55,000)
5-year novated lease with running costs: ~$1,100/month
Annual pre-tax cost: $13,200
Tax saved at 32.5%: $4,290/year
FBT savings (vs ICE): $5,000+/year
Total savings over 5 years: $40,000+
Things to Consider
Impact on Take-Home Pay
Salary sacrifice reduces your take-home pay now in exchange for future benefits. Make sure you can afford reduced cash flow before committing.
Super Access Restrictions
Money in super is locked until preservation age (60 for most people). Don't sacrifice so much that you can't meet current expenses.
Leave Calculations
Annual leave, long service leave, and redundancy payments are usually calculated on your pre-sacrifice salary, but check your employment agreement.
Income for Government Benefits
Some government payments use "adjusted taxable income" which adds back salary sacrifice amounts. This may affect Family Tax Benefit, child care subsidy, or HECS repayments.
HECS-HELP Warning
Salary sacrifice to super doesn't reduce your income for HECS repayment purposes. Your repayment income still includes reportable super contributions.
How to Set Up Salary Sacrifice
- Check employer policy: Not all employers offer all types of salary sacrifice
- Calculate your limit: Know your concessional cap and how much SG you already receive
- Complete paperwork: Fill out your employer's salary sacrifice form
- Nominate your super fund: Ensure you have a chosen fund for contributions
- Set start date: Arrangements are usually set up to begin from a specific pay period
- Monitor contributions: Check super statements to ensure contributions arrive