Salary packaging and salary sacrifice: the tax saving, and what it does to Centrelink, HELP and private health

The basics

• Salary packaging and salary sacrifice mean the same thing: you give up some of your future pay in exchange for benefits of the same cost, paid before tax.
• It has to be agreed before you earn the pay. You can't sacrifice wages or a bonus you've already become entitled to.
• What's worth packaging depends on your employer. For most employers, only super, a novated lease and some work items (like a laptop) make sense. Not-for-profit employers, such as charities and public hospitals, can also package everyday expenses tax-free up to a cap.
• Anything else packaged through a regular employer usually attracts fringe benefits tax (FBT) at 47%, which the employer normally passes on to you, so there's no saving.

Salary sacrificing into super

• Caps: salary sacrifice counts towards your concessional contributions cap, together with your employer's super guarantee and any personal contributions you claim a deduction for. The cap is $30,000 for 2025–26 and $32,500 from 1 July 2026. Contributions over the cap are taxed at your marginal rate.
• Unused cap from the previous 5 years can be carried forward if your total super balance was under $500,000 at the previous 30 June.
• If your income plus concessional contributions is over $250,000, an extra 15% (Division 293 tax) applies to the contributions.
• On a taxable income under $45,000, the saving is small or nil, because your tax rate is about the same as the fund's 15%.
• The money is locked away until you meet a condition of release, usually retirement after preservation age.

Money you sacrifice into super is taxed at 15% in the fund instead of your marginal rate. Your employer must still pay the 12% super guarantee on your full salary before the sacrifice; it can't be reduced because you're sacrificing.

Example: Jess earns $90,000 and sacrifices $10,000 a year into super. Her taxable income drops to $80,000, saving $3,200 in tax and Medicare levy (32% of $10,000). Her fund pays $1,500 tax on the contribution (15%), so she's $1,700 a year better off overall. Her take-home pay drops by $6,800, and her super goes up by $8,500.

Not-for-profit and hospital packaging

If you work for a public benevolent institution or health promotion charity, a public or not-for-profit hospital, or a public ambulance service, your employer is exempt from FBT up to a cap. You can use the cap to pay for everyday costs like your rent, mortgage or credit card from your pre-tax salary.

The caps are set as 'grossed-up' amounts: $30,000 for charities and $17,000 for hospitals and ambulance services. In real terms that's about $15,900 and $9,010 of your salary a year. There's also a separate cap of $5,000 grossed-up (about $2,650) for meal entertainment and venue hire.

Example: Priya is a nurse at a public hospital earning $80,000. She packages $9,010 a year towards her mortgage. Her taxable income falls to $70,990, saving about $2,880 in tax and Medicare levy, for little more than a small admin fee.

Novated leases and electric cars

• A novated lease is a car lease your employer pays from your salary. For a petrol or diesel car, FBT applies, and the lease is usually structured so that part of the payments comes from your after-tax pay to cancel the FBT. The saving is mostly the GST on the car and running costs, so it's modest.
• Electric cars under the luxury car tax threshold for fuel-efficient vehicles are currently exempt from FBT, so the whole lease, including charging, insurance and servicing, can come from pre-tax salary. That's why EV novated leases have been popular. Plug-in hybrids lost the exemption for new arrangements from 1 April 2025.
• The government announced in May 2026 that it plans to phase the EV exemption down from 1 April 2027. If you're considering a new EV lease, check where that's up to before you sign, and how any existing lease is treated.
• When you change jobs, the lease doesn't automatically follow you. Check what happens before you commit to a multi-year lease.

It shows on your income statement

• Reportable employer super contributions: the super you salary sacrificed. Jess's would show $10,000.
• Reportable fringe benefits: the 'grossed-up' value of packaged benefits over $2,000 a year. Priya's $9,010 shows as $17,000. An EV novated lease is exempt from FBT but still reportable: a car with a $10,000 benefit value shows as about $18,870.

Your income statement in myGov shows two extra figures that don't change your tax but feed into the income tests below:

Medicare levy surcharge and your private health rebate

Both use your 'income for MLS purposes': your taxable income plus reportable fringe benefits, reportable super contributions and a few other items. So packaging doesn't keep you under the threshold, and it can push you over.

For 2026–27, the surcharge applies to singles earning over $105,000 and families over $210,000 (plus $1,500 for each child after the first) without appropriate private hospital cover. The same thresholds reduce your private health insurance rebate in steps, down to nil in the top tier.

Example: Ben is single with a taxable income of $95,000 and no hospital cover. He takes out an EV novated lease, and his income statement shows $18,870 of reportable fringe benefits. His income for MLS purposes is $113,870, over the $105,000 threshold, so he pays a 1% surcharge of about $1,140 that he didn't expect. With hospital cover he'd avoid the surcharge, but his rebate would drop to the lower tier.

privatehealth.gov.au: Medicare levy surcharge thresholds ↗

HELP and other study loan repayments

Your compulsory repayment is worked out on your repayment income, which adds reportable fringe benefits and reportable super contributions back to your taxable income. Jess's repayment income is still $90,000, not $80,000. Packaging doesn't reduce your HELP repayment, and a large fringe benefit can increase it.

Centrelink and family payments

• Family Tax Benefit, Child Care Subsidy and child support assessments are based on adjusted taxable income, which adds reportable fringe benefits and reportable super contributions back to your taxable income. Packaging won't increase these payments, and if you estimated your income without the add-backs, you can end up with a debt when your payments are balanced after tax time.
• For income support payments such as JobSeeker, Parenting Payment and the Age Pension, Centrelink counts salary sacrificed amounts as income, including amounts you sacrifice into super. Your employer's compulsory super isn't counted.
• If you're over Age Pension age, super contributions also add to your super balance, which counts under the assets test and deeming.
• When you estimate your income for Centrelink, use your full salary before packaging, plus any fringe benefits. Using the take-home or taxable figure is a common way to end up overpaid.

Who it suits

• Employees of charities, public hospitals and ambulance services: the tax-free cap is one of the best deals available. Take it up.
• Anyone on $45,000 or more with room under their concessional cap who can afford to lock money away until retirement: super salary sacrifice is a genuine saving.
• An EV novated lease can save a lot of tax, but check the effect on the Medicare levy surcharge, your health insurance rebate, HELP and Centrelink first, and the planned changes to the exemption.
• If you rely on Family Tax Benefit or another income-tested payment, or you're close to a threshold, work out the full picture before you start.

Thinking about salary packaging, or not sure how what you already have affects your return? Bring your income statement and package details to your appointment and we'll run the numbers with you.