Best Salary Packaging Australia: How It Affects Your Salary Index Position

What Is Salary Packaging?

Salary packaging, also known as salary sacrifice, is an arrangement where you agree to forgo part of your pre-tax salary in exchange for a benefit provided by your employer. Common benefits include cars (via novated lease), laptops, superannuation contributions above the compulsory 12% super guarantee, and childcare. The idea is to reduce your taxable income, so you pay less tax and Medicare levy, boosting your take-home pay.

In Australia, salary packaging is most generous in the not-for-profit sector. Public hospitals, charities and some charities can offer up to $17,000 per year of FBT-exempt benefits (indexed). For-profit employers can also offer packaging, but most benefits attract fringe benefits tax (FBT) at 47%, which can reduce the advantage. The best salary packaging Australia strategy depends on your employer type, your marginal tax rate, and the benefits you actually use.

How Salary Packaging Relates to the Salary Index

The Salary Index measures gross ordinary-time earnings for full-time adult employees. The national line is 100, which equals $108,352 per year (based on ABS Average Weekly Earnings, May 2026). Your index number is your annual gross pay divided by that figure, times 100. For example, a retail worker earning $75,000 has an index of about 69.2, well below the national average.

Salary packaging does not change your gross ordinary-time earnings. If your employment contract says you earn $80,000 per year, that is your gross figure for index purposes. The packaging simply redirects some of that $80,000 into a benefit. Your index remains based on $80,000. However, your taxable income drops, so you pay less tax. That means your take-home pay (cash plus the benefit) can be higher than if you had not packaged.

Examples of Salary Packaging and Index Impact

Consider a nurse working in a public hospital earning $90,000 per year. The national index for health care and social assistance is 97.8, so this nurse is close to the industry average. If she packages a car worth $12,000 per year (including running costs) under a novated lease, her taxable income falls to $78,000. Her gross ordinary-time earnings remain $90,000, so her index is still about 83.1. But her take-home cash increases because she pays less tax. The benefit of the car is also tax-free if structured correctly under the FBT exemption for public hospitals.

For a professional in the private sector earning $120,000 (index 110.8), packaging additional super contributions of $10,000 reduces taxable income to $110,000. The super contribution is taxed at 15% inside the fund, but the employee saves their marginal rate (37% plus 2% Medicare levy) on that $10,000. Again, the gross salary for index purposes remains $120,000.

Tax and Super Considerations

From 1 July 2026, the super guarantee is 12% on earnings up to the maximum contribution base of $270,830. Salary packaging extra super can be a tax-effective way to boost retirement savings. The concessional contributions cap for 2026–27 is $30,000 (indexed). If you exceed the cap, additional tax applies.

Resident tax rates for 2026–27 are: nil up to $18,200; 15% from $18,201 to $45,000; 30% from $45,001 to $135,000; 37% from $135,001 to $190,000; and 45% above $190,000. The Medicare levy is 2%. Salary packaging reduces your taxable income, so you may fall into a lower bracket or pay less tax at your marginal rate.

Awards and Minimum Wage

Your award or agreement sets minimum pay rates. Salary packaging cannot reduce your gross pay below the award rate or the national minimum wage ($26.44 per hour from 1 July 2026). The Fair Work Ombudsman requires that your total remuneration (cash plus the value of the benefit) meets the minimum. For junior employees, the junior rates apply (e.g., $18.06 per hour at 18 years). Packaging must still respect those minimums.

State and Industry Differences

The salary index varies by state and industry. For example, Western Australia has an index of 106.9, while Tasmania is 88.6. Mining has an index of 154.7, retail trade 75.9. Your salary packaging strategy might differ if you live in a high-index state like ACT (109.9) or work in a low-index industry like accommodation and food services (72.5). The best salary packaging Australia approach considers your location and sector because the tax savings are the same regardless, but the relative benefit of packaging may be larger if your gross pay is already high.

Choosing the Best Salary Packaging Australia Option

To find the best salary packaging Australia arrangement, start by checking if your employer offers packaging and what benefits are available. Not-for-profit employees often have access to FBT-exempt caps. For-profit employees can still package cars, laptops, or super, but FBT may apply. Compare the net benefit after tax and FBT. Use online calculators or consult a tax professional.

Remember that salary packaging does not change your salary index figure. It only changes how much of your pay you receive as cash versus benefits. Your index is a measure of gross earnings, so it remains the same. But your financial position can improve because you keep more of your money.

Internal Resources

For more on how pay compares across Australia, see the Salary Index. If you want to understand award rates and minimum pay, check our pay guides. You can also explore states and industries to see how your index stacks up. For a deeper explanation of the index calculation, visit how the index works. And for other topics related to pay and conditions, browse our topics.

Final Thoughts

Salary packaging is a legitimate way to reduce tax and increase take-home pay. It does not affect your standing on the national salary index, but it can improve your overall compensation. The best salary packaging Australia strategy depends on your employer, your tax bracket, and the benefits you value. Always seek professional advice to ensure you comply with FBT and super rules.