Is salary packaging worth it? How it affects your place on the Australian salary index

What is salary packaging?

Salary packaging (also called salary sacrificing) is an arrangement where you agree to give up part of your gross salary in exchange for a benefit of similar value. The benefit is paid from your pre-tax salary, reducing your taxable income. Common packaged items include cars, laptops, additional super contributions, and, for not-for-profit employees, meal and entertainment cards. The Australian Tax Office (ATO) sets rules on what can be packaged and caps for certain items.

How salary packaging affects your take-home pay

When you salary package, your employer deducts the cost of the benefit from your gross salary before calculating tax. This lowers your taxable income, which can reduce the amount of tax you pay. For example, if you earn $90,000 a year and package a $10,000 car, your taxable income drops to $80,000. Assuming you are a resident with the tax-free threshold, your tax on $90,000 would be about $20,667 (including Medicare levy), but on $80,000 it would be about $17,467 – a saving of $3,200. You still pay for the car, but with pre-tax dollars, making it cheaper than buying it with after-tax money.

The exact benefit depends on your marginal tax bracket. In 2026–27, the resident tax rates are: nil up to $18,200; 15% on income from $18,001 to $45,000; 30% on income from $45,001 to $135,000; 37% on income from $135,001 to $190,000; and 45% above $190,000. The Medicare levy is 2%. If you are in the 30% bracket, each dollar packaged saves you 30 cents in tax plus 2% Medicare levy. For not-for-profit employees have extra concessions: some items are exempt from FBT up to $15,900 for meal and entertainment cards, which can be very valuable.

Where does salary packaging sit on the salary index?

The Salary Index uses the national line of 100, where 100 equals full-time adult ordinary-time earnings of $108,352 a year (based on ABS Average Weekly Earnings, May 2026). Your gross salary is divided by that line and times 100. For example, a salary of $80,000 is about index 73.8. But salary packaging does not change your gross figure on paper, so your index number stays the same. However, your effective after-tax income can be higher than what the index suggests for your gross pay. If you package $15,000 in super, your taxable income drops to $85,000, and you pay less tax. Your take-home plus the super contribution may be closer to what someone on a higher index would have after tax. So while the index itself is unchanged, salary packaging can improve your financial position relative to the national line.

Is it worth it for different scenarios?

For employees on award wages

If you are on an award wage, such as the national minimum wage of $26.44 per hour (index 48.2, annualised $52,255), salary packaging may not be as beneficial because your tax rate is lower. The national minimum wage from 1 July 2026 is $26.44 per hour, $1,004.9 per week, annualised $52,255. If you package a car, the savings are small. However, if you are a junior employee, your rates are even lower. For example, a 20-year-old adult minimum wage is $25.83 per hour. The tax saving on a $5,000 package would be about $250. But you may have to pay FBT if the benefit is not exempt. In many cases, it is not worth it for low-wage earners because the administrative fees and the cost of the benefit may outweigh the tax saving.

For employees in different states

If you work in states with different index, your gross salary may be higher or lower than the national line. For example, in Western Australia index 106.9 (annualised $115,825), a higher salary means you are in the 30% tax bracket, so packaging a car saves more. In Tasmania index 88.6 (annualised $115,825), a lower salary means you are in the 30% tax bracket, so packaging a car saves less. The benefit is still worth it if you have a use for the benefit.

For employees in different industries

Some industries have higher or lower index. Mining index 154.7, retail trade index 75.9. If you are in mining, you are likely in the 45% tax bracket, so salary packaging can save you a lot. In retail, you may be in the 30% bracket, so savings are moderate. The industries guide can help you see where your industry sits.

How to decide if salary packaging is worth it

To decide if salary packaging is worth it, consider these factors:

• Your marginal tax rate: higher tax bracket means more tax saving. Use the how the index works to see your tax bracket.
• The type of benefit: some benefits are exempt from FBT, such as super contributions up to the cap. Others like cars have a statutory formula that may have FBT that may be paid by your employer. Some employers pass the FBT to you, so you need to check.
• Your employer's policy: some employers offer salary packaging with no FBT, but some have fees. Check with your employer.
• Your personal situation: if you need a car or laptop, packaging can make it cheaper.

Conclusion

Salary packaging is not a one-size-fits-all answer. It depends on your income, your tax bracket, and the benefit. For many employees, it can save you money and improve your effective pay relative to the national line. But for low-wage earners, it may not be worth it. Always check with a tax professional.

For more on pay guides, see pay guides and topics for more on salary packaging.