Salary sacrifice is an arrangement where you agree with your employer to forgo part of your future gross pay in exchange for benefits of a similar value. Because the amount is redirected before it becomes salary or wages, it is not included in your taxable income, and the benefit is instead taxed under the rules that apply to that benefit type. The ATO refers to these arrangements as effective salary sacrifice arrangements, and treats them as ineffective if they cover pay you have already earned.
The most common version directs extra money into superannuation. Other packaged benefits include a car under a novated lease, work-related portable devices, professional memberships, and expense payments offered by public benevolent institutions and public hospitals. Each of those categories has its own tax consequences for you and for your employer, so the value of an arrangement depends on your marginal tax rate, your existing super contributions, and whether fringe benefits tax applies.
This guide separates the three questions people usually mix together: whether you are eligible to enter an arrangement, how the tax is actually calculated, and what records need to exist before your first sacrificed pay cycle. It also covers the practical limits, including the concessional contributions cap, the effect on employer super obligations, and what reporting appears on your income statement. If you want to see how the change flows into your fortnightly figure, the Deductit tax deduction calculator shows the formulas behind each calculation. Nothing here is personal tax advice, and the rules described come from current ATO guidance rather than any general rule of thumb.
- Salary sacrifice is a written agreement to give up part of your future pay in return for benefits your employer provides, so the sacrificed amount is not counted as your salary or wages for income tax.
- Sacrificed super contributions are treated as employer contributions and are taxed in the fund at 15 per cent, and they count towards your concessional contributions cap, which the ATO sets at $30,000 for 2024-25 and 2025-26.
- Amounts above the cap are added to your assessable income and taxed at your marginal rate, with a 15 per cent offset so the contributions are not taxed twice.
- Non-super benefits such as cars, devices and loan repayments can trigger fringe benefits tax for your employer, and reportable amounts can still affect Medicare levy surcharge, child support and family payments.
- The arrangement must be documented before the income is earned, because the ATO does not accept sacrificing pay you have already become entitled to receive.
An effective arrangement has three moving parts: an agreement made before the income is earned, a reduction in the cash salary your employer reports, and a benefit provided in place of that cash. For salary sacrifice superannuation, your employer pays the agreed amount into your fund as an employer contribution. That contribution is taxed at 15 per cent in the fund rather than at your marginal rate, which is where the saving comes from for most middle and higher income earners.
For non-super benefits, the employer generally becomes liable for fringe benefits tax on the taxable value of the benefit, and FBT is levied at 47 per cent on the grossed-up value. Employers often pass that cost back through the package, which is why packaging a private expense rarely produces the same result as packaging super.
| Feature | Sacrifice to super | Sacrifice to other benefits |
|---|---|---|
| Who pays the tax | Your super fund | Your employer, through FBT |
| Headline rate | 15 per cent contributions tax | 47 per cent on the grossed-up value |
| Annual limit | $30,000 concessional cap for 2025-26 | No cap, but FBT applies unless exempt |
| Access to the money | Preserved until a condition of release | Immediate, as the benefit itself |
If you need to confirm how your employer is reporting an arrangement, the ATO phone number for individual enquiries is published on the ATO website alongside its business and super lines.
Redirecting pre-tax pay lowers your assessable income, but it does not disappear from every other calculation. Sacrificed super contributions are concessional contributions, so they share the $30,000 cap with your employer's compulsory super guarantee payments and any personal contributions you claim as a deduction. Once your super guarantee is counted, the room left for salary sacrifice superannuation is often much smaller than people assume.
Reportable employer super contributions appear on your income statement. The ATO uses them when working out the Medicare levy surcharge thresholds, private health insurance rebate tiers, Division 293 tax, and entitlements such as family tax benefit and child support assessments. Non-super packaged benefits can create a reportable fringe benefits amount with a similar effect.
These arrangements also cannot be used to reduce your employer's super guarantee obligation, because since 1 January 2020 the sacrificed amount still forms part of the ordinary time earnings base. Published ATO service numbers, including 1300661508, are listed by topic on the ATO contact page rather than in third party guides.
A salary sacrifice arrangement is an agreement between you and your employer, so it starts with your payroll or HR team rather than with the ATO.
Put plainly, it works by shifting part of your future pay into a benefit before payroll treats that money as wages.
The ATO expects the arrangement to be documented and in place before you earn the income it applies to, and it will treat a redirection of accrued salary, bonuses already declared, or accumulated leave entitlements as ineffective.
What you need before you start:
- Your current gross salary, pay frequency and year to date super guarantee amount
- Your fund's name, ABN, USI and member number, so contributions are not misallocated
- Confirmation of whether your employer charges administration or FBT costs back to your package
- Any award or enterprise agreement clause that restricts packaging
- A view of your concessional cap room, including unused cap amounts carried forward if your total super balance was under $500,000 on 30 June of the previous year
A workable sequence is straightforward. Ask your employer which benefits they offer and whether they use a packaging administrator. Calculate the amount you can commit to for the full year rather than a figure you may need to unwind. Sign a written agreement that states the sacrificed amount, the benefit provided, the start date and how the arrangement can be varied. Check your first payslip to confirm the reduction and the contribution both appear. Then diarise a mid-year review, because pay rises, bonuses and a second job can all push you over the cap. If you want a broader view of how contributions interact with deductions, the giving and super deduction rules set out the ATO conditions for each category. The ATO contact number for super enquiries is published on the ATO website.
Packaging a home loan repayment is only available through employers that can provide exempt or concessionally treated benefits, mainly public benevolent institutions, health promotion charities and public and not-for-profit hospitals, which have capped FBT exemption thresholds. For most private sector employees, a mortgage payment packaged from pre-tax pay would be an expense payment fringe benefit and attract FBT at the full grossed-up rate, which removes the advantage.
Practical alternatives include directing pay rises straight to an offset account, making fortnightly rather than monthly repayments to reduce interest days, and using post-tax salary for extra repayments while keeping pre-tax capacity for super. The question of should i salary sacrifice super or pay down debt usually comes down to your loan rate against your marginal tax rate, and your access needs, since super is preserved. The sacrifice super limit also matters: if the concessional cap is already close to full, extra repayments may be the only remaining lever.
Salary sacrifice super limit should be matched to the skin concern, current tolerance, and whether medical review is needed before changing active ingredients.
The tax benefit is the gap between your marginal rate and the 15 per cent contributions tax applied in the fund. An employee on the 32 per cent bracket, including the Medicare levy, keeps about 17 cents more per dollar by making a sacrifice into super rather than taking the cash, and the gap widens at 39 and 47 per cent. Contributions also compound inside a concessionally taxed environment for the rest of your working life.
The costs and risks are just as concrete:
- Money in super is preserved until you meet a condition of release, usually preservation age
- Exceeding the concessional cap adds the excess to your assessable income at your marginal rate
- Division 293 tax adds 15 per cent for those with income and contributions above $250,000
- Reduced cash salary can affect borrowing capacity assessments and some leave loading calculations
- Packaged non-super benefits may carry administration fees and FBT recovery
Whether you should i sacrifice super in a given year therefore depends on cap room, cash flow and how close you are to retirement, not on the headline saving alone.
Consider an employee earning $95,000 who sacrifices $500 a month, or $6,000 a year. Their assessable income falls to $89,000, which at the 2025-26 rates removes income taxed at 30 per cent plus the 2 per cent Medicare levy, a saving of about $1,920. The fund pays 15 per cent contributions tax on the $6,000, or $900, leaving $5,100 invested. The net benefit is roughly $1,020 a year compared with taking the same amount as cash.
Cap room needs checking first. Super guarantee at 12 per cent on $95,000 is $11,400, so a $6,000 sacrifice into super brings total concessional contributions to $17,400, comfortably under the $30,000 cap. The benefits of sacrifice super in this example are modest per year but meaningful over a decade, and the trade-off is $6,000 of pre-tax pay locked away until preservation age.
Several changes have reshaped these arrangements in recent years. From 1 January 2020, sacrificed amounts can no longer reduce an employer's super guarantee obligation or count towards satisfying it. The $450 monthly earnings threshold for super guarantee was removed from 1 July 2022, so low-income and part-time employees are now covered. The super guarantee rate reached 12 per cent from 1 July 2025.
The concessional contributions cap rose to $30,000 from 1 July 2024 and remains at that level for 2025-26. Carry-forward unused cap amounts are available for up to five years where your total super balance was below $500,000 at the previous 30 June. From 1 July 2026, employers will be required to pay super at the same time as salary and wages under payday super, which affects the timing of when sacrificed contributions are received. Whether does sacrifice affect tax return outcomes depends on these reported amounts, and all thresholds should be confirmed against current ATO publications.
The ATO's long-standing position on these arrangements sits in Taxation Ruling TR 2001/10, which distinguishes effective arrangements from ineffective ones and explains that pay already earned cannot be sacrificed. Practical Compliance Guideline PCG 2021/4 covers allocation of professional firm profits and is relevant where packaging sits alongside practice income, while the ATO's annual FBT guidance updates the gross-up rates, the car parking threshold and the electric vehicle exemption conditions.
Two areas attract review attention. The first is documentation dated after the income was earned, which the ATO treats as evidence of an ineffective arrangement. The second is exceeding the sacrifice super limit across multiple employers, since each employer applies the cap without visibility of the others. On the question of whether does sacrifice affect tax return preparation, the reported employer contribution and any reportable fringe benefits amount are prefilled from your income statement, so reconcile them before lodging.
Eligibility rests on an agreement made with your employer before the income is earned, and on the benefits that employer can lawfully provide. The calculation compares your marginal rate against 15 per cent contributions tax for super, or against FBT at the grossed-up rate for other benefits, within the $30,000 concessional cap. Records mean a signed agreement, payslips showing the reduction and the contribution, and a year-end check of reported amounts. Deductit sets out the ATO rule behind each deduction calculation and does not provide personal tax advice or lodge returns.
Is salary sacrificing a good idea?
Salary sacrificing suits people whose marginal tax rate is above 15 per cent, who have room under the $30,000 concessional cap, and who do not need the money before preservation age. It is less suitable if your income is low enough that the 15 per cent contributions tax offers little advantage, if you are close to exceeding the cap, or if you rely on every dollar of take-home pay. Because it also changes reportable amounts used for the Medicare levy surcharge and family payments, the answer depends on your whole position rather than the tax rate alone.
How is salary sacrifice work?
The mechanics are simple: you agree in writing to reduce your future gross pay, your employer redirects that amount to a nominated benefit, and payroll reports the lower salary. Salary packaging is the broader term for the same idea applied to non-super benefits such as a novated lease car, portable work devices, professional subscriptions or, for eligible not-for-profit and hospital employees, general living expenses up to a capped FBT exemption amount. A salary packaging agreement works by stating the benefit, the sacrificed amount, the start date and the variation rules before any of the income accrues. Packaging a mortgage follows the same structure but is only concessionally treated for those exempt employers, so private sector employees would face FBT at the grossed-up rate.
What is a salary sacrifice?
A sacrifice is an agreement to give up part of your future salary or wages in return for benefits of similar value. The ATO calls this an effective sacrifice arrangement when it is documented in advance and relates to income not yet earned. Accrued leave, a declared bonus or wages already paid cannot be sacrificed.
What happens if you it more than $30,000?
Contributions above the $30,000 concessional cap are included in your assessable income and taxed at your marginal rate, with a 15 per cent tax offset applied so the amount is not taxed twice. The ATO issues an excess concessional contributions determination, and you can either pay the extra tax from your own funds or elect to release up to 85 per cent of the excess from super. Unreleased excess amounts then count towards your non-concessional cap.
Is it worth it?
Worth depends on three measurable things: the gap between your marginal rate and 15 per cent, how much cap room remains after your employer's 12 per cent super guarantee, and whether you can lock the money away. At $95,000 with $6,000 sacrificed, the net annual benefit is around $1,020. Check your current figures with the Deductit pay calculator and confirm the thresholds against current ATO guidance before signing an agreement.
You may also find these related guides helpful: find.