When Australians talk about getting more from their pay before tax eats into it, two terms come up again and again: salary packaging and salary sacrifice. People often use them interchangeably, but they are not the same thing. One is a broad way of structuring how your pay is delivered; the other is one specific technique that sits inside it. Mix them up and you risk misunderstanding your tax, your super, or the fringe benefits tax (FBT) rules that govern them.
This guide breaks down exactly how each one works, where the tax savings come from, how the rules differ for ordinary employers versus not-for-profit (NFP) and public hospital employers, and the step-by-step maths of a super salary sacrifice. By the end you will know which one — if either — suits your situation.
What is salary sacrifice?
Salary sacrifice is an agreement between you and your employer where you give up part of your pre-tax salary in exchange for something else of equal value. The most common use is extra superannuation contributions: instead of receiving that slice of salary in your pay packet, your employer sends it directly to your super fund before income tax is applied.
It is not limited to super, though. A novated lease on a car, for example, is also a salary sacrifice arrangement — you sacrifice pre-tax salary and the employer pays for the lease and running costs on your behalf. The principle is always the same: you forgo cash salary, and the benefit flows somewhere more tax-efficient.
How salary sacrificing into super works
The appeal of super sacrifice is the tax arbitrage. Income tax on your salary is charged at your marginal rate — 30% plus the Medicare levy for most middle-income earners — while contributions made into super through a salary sacrifice arrangement are taxed inside the fund at a flat 15%. The gap between those two rates is where the saving lives.
There are a few rules that keep this honest:
- Concessional contributions cap: salary-sacrificed super counts toward the concessional contributions cap, which is $30,000 for 2025-26. Go over it and excess contributions get taxed at your marginal rate with an interest charge.
- Division 293 tax: if your income plus concessional contributions exceed $250,000, an additional 15% tax applies on contributions above that threshold — halving the benefit for very high earners.
- SG must be calculated on pre-sacrifice salary: since 1 January 2020, employers must calculate the super guarantee on your salary before the sacrifice. The employer can no longer shave their SG obligation by sacrificing against it. The SG rate for 2025-26 is 12%.
- Reportable super contributions: your salary-sacrificed amounts are reported to the ATO and count toward income tests such as “income for Medicare levy surcharge purposes” and HELP/HECS repayment income.
- It must be a genuine pre-work agreement: the sacrifice has to be agreed before you perform the work. You cannot sacrifice salary you have already earned.
Salary sacrifice into super is available to almost any employee whose employer is willing to offer it — there is no special industry or employer type required.
The tax maths, worked through
Take a concrete example: you earn a $90,000 salary and agree to sacrifice $10,000 of it into super for the year. Here is what happens step by step:
| Step | Without sacrifice | With $10,000 super sacrifice |
|---|---|---|
| Salary received | $90,000 | $90,000 (cash salary $80,000 + $10,000 to super) |
| Taxable income | $90,000 | $80,000 |
| Tax on the $10,000 slice (at 30% marginal rate) | $3,000 | — |
| Contributions tax inside super (15%) | — | $1,500 |
| Net tax on that $10,000 | $3,000 | $1,500 |
| Saving | — | $1,500 |
The saving is simply the rate difference: 30% you would have paid minus 15% the fund pays, applied to the $10,000 sacrificed — that is 15% × $10,000 = $1,500 straight back into your pocket (ignoring Medicare). The bigger the gap between your marginal rate and 15%, the bigger the win, which is why super sacrifice is most powerful for higher-rate taxpayers.
Try your own numbers with our salary sacrifice calculator.
What is salary packaging?
Salary packaging is the broader concept: it means restructuring how your total remuneration is delivered, replacing part of your cash salary with benefits. A car, a laptop, a phone, health insurance, or even mortgage and rent payments can all be delivered as packaged benefits rather than paid for out of your after-tax pay.
Where it gets interesting is fringe benefits tax. When an employer provides benefits instead of cash, FBT may apply — and FBT is paid by the employer, not by you. Most ordinary employers are FBT-liable, which means packaging there has to clear the FBT hurdle to be worthwhile. There are two big exceptions:
- Electric vehicles: eligible electric vehicles under the luxury car tax threshold are exempt from FBT, which is why novated leases on EVs have become so popular.
- Exempt employers: public hospitals and certain not-for-profit organisations are exempt employers, and their staff get famously generous packaging caps.
The NFP and public hospital caps
If you work for a public hospital or an eligible charity or not-for-profit, salary packaging is one of the best tax breaks in the country. Staff of these FBT-exempt employers can package up to $15,900 of general living expenses per FBT year without FBT applying — that covers things like mortgage repayments, rent, groceries, school fees and other everyday costs — plus a further $2,650 of meal entertainment (dining out, hotel stays) per FBT year.
Because the benefit replaces taxable salary dollar for dollar, a nurse or charity worker packaging the full $15,900 can be several thousand dollars a year better off — a benefit that simply is not available to workers at ordinary for-profit employers.
Packaging at ordinary (FBT-liable) employers
Outside the exempt sector, packaging still happens but the tax logic is tighter because FBT applies. The classic example is a novated lease: you package a car through a three-way agreement between you, your employer and a lease provider, paying for the lease and running costs from pre-tax salary. Cars attract FBT under the 20% statutory formula — though, as noted, eligible EVs under the luxury car tax threshold are FBT-exempt. Run the numbers first with our novated lease calculator before signing anything.
Salary packaging vs salary sacrifice: the key differences
With both defined, the distinction is clearer. Salary packaging is the umbrella — the whole system of receiving part of your pay as benefits. Salary sacrifice is one technique under that umbrella: giving up pre-tax salary, most commonly to fund extra super. In fact, the super sacrifice example above is a form of salary packaging — but when people say “salary packaging” in Australia, they usually mean the broader benefits-style arrangements, especially the NFP caps.
| Salary sacrifice (super) | Salary packaging (benefits) | |
|---|---|---|
| What you give up | Pre-tax salary, directed to super | Pre-tax salary, redirected into benefits |
| Typical uses | Extra super contributions; novated leases | Cars, laptops, phones, health insurance, mortgage/rent (eligible NFP staff) |
| Where the saving comes from | Taxed at 15% inside super vs your marginal rate | FBT exemptions or caps; paying costs with pre-tax dollars |
| FBT involved? | No — super contributions are not a fringe benefit | Yes, unless the employer is FBT-exempt or the benefit is specifically exempt (e.g. eligible EVs) |
| Available to | Almost any employee whose employer allows it | Most valuable at NFP/public-hospital employers ($15,900 + $2,650 caps); limited at ordinary employers |
| Counts toward ATO income tests? | Yes — reportable super contributions feed into MLS and HELP/HECS repayment income | Yes — reportable fringe benefits count toward income for MLS purposes and HECS repayment income |
| Key cap/rule | $30,000 concessional cap (2025-26); SG at 12% on pre-sacrifice salary | $15,900 living expenses + $2,650 meal entertainment per FBT year (exempt employers) |
Which one suits you?
Salary sacrifice into super suits you if you are a middle-to-high income earner wanting to pay less tax while boosting your retirement balance, you are under the $30,000 concessional cap, and your employer offers the arrangement. It is simple, FBT-free, and available almost everywhere. Project the long-term effect with our super calculator.
Salary packaging suits you if you work for a public hospital, charity or other eligible not-for-profit and can use the $15,900 plus $2,650 FBT-year caps — this is typically worth more in take-home dollars than super sacrifice alone. It also suits anyone considering a novated lease, especially on an eligible EV, where the FBT exemption does the heavy lifting.
Both together: they are not mutually exclusive. An NFP nurse could package living expenses up to the cap and salary sacrifice extra super within the concessional cap, stacking the benefits — just watch the reportable amounts on your payment summary, since both feed into income tests for the Medicare levy surcharge and HECS repayments.
FAQ
Is salary sacrifice the same as salary packaging?
Not exactly. Salary sacrifice is a specific arrangement where you give up part of your pre-tax salary — most commonly for extra super. Salary packaging is the broader system of receiving pay as benefits, and sacrifice is one technique within it. In everyday Australian usage, “salary packaging” usually refers to benefits-style arrangements such as the NFP $15,900 cap or a novated lease.
How much super can I salary sacrifice in 2025-26?
Your salary-sacrificed contributions count toward the $30,000 concessional contributions cap for 2025-26, which also includes your employer’s 12% SG. If your income plus concessional contributions exceed $250,000, Division 293 tax adds another 15% on contributions above that threshold. Stay inside the cap to keep the full tax benefit.
Does salary sacrifice affect my employer’s super contributions?
No — not anymore. Since 1 January 2020, employers must calculate the super guarantee on your pre-sacrifice salary. Your sacrifice cannot be used to reduce their 12% SG obligation, so your guaranteed super is protected regardless of how much you sacrifice.
What is the $15,900 salary packaging cap?
Staff of FBT-exempt employers — public hospitals and eligible not-for-profits — can receive up to $15,900 of general living expenses per FBT year as packaged benefits without FBT applying, plus $2,650 of meal entertainment. The FBT year runs 1 April to 31 March. Ordinary for-profit employers do not get this exemption.
Will salary packaging or sacrificing affect my HECS repayment or Medicare levy surcharge?
Yes, it can. Salary-sacrificed super is a reportable super contribution, and packaged benefits appear as reportable fringe benefits amounts — both count toward the income tests the ATO uses for HELP/HECS repayment income and income for Medicare levy surcharge purposes. Factor this in before you maximise everything.
Is a novated lease salary sacrifice or salary packaging?
Both. A novated lease is a salary sacrifice arrangement — you give up pre-tax salary — used to deliver a packaged benefit (the car). At ordinary employers it can trigger FBT under the 20% statutory formula, which is why eligible electric vehicles under the luxury car tax threshold are so attractive: they are FBT-exempt. Always model it with our novated lease calculator first.
Conclusion
Salary sacrifice and salary packaging are siblings, not twins. Sacrifice is the scalpel — a targeted pre-tax swap, most powerful when aimed at super, where the gap between your marginal rate and the 15% contributions tax turns into real savings, as the $1,500 saving on a $10,000 sacrifice from a $90,000 salary shows. Packaging is the broader toolkit — the way your whole pay is delivered — and it shines brightest for NFP and public hospital staff who can access the $15,900 plus $2,650 FBT-year caps, or for anyone running an FBT-exempt EV through a novated lease.
Neither changes what you earn; both change how much of it the taxman sees. Know your caps, watch the reportable amounts on your payment summary, and make sure your employer has agreed to the arrangement before you start.
Ready to see your own numbers? Put your salary into our salary sacrifice calculator and find out exactly how much you could save.