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How salary packaging living expenses changes your offer comparison
Learn how salary packaging living expenses affects take-home pay and the salary index when comparing job offers in Australia.
Salary packaging living expenses can reduce taxable income, but the effect on the salary index depends on the employer's arrangement; the national line is $108,352 per year (index 100).
What is salary packaging living expenses?
When you read a job ad and see "salary packaging living expenses", it means the employer lets you pay for certain everyday costs from your pre-tax salary. Instead of receiving your full gross wage and then paying for rent, groceries, or utilities with after-tax dollars, you can deduct those costs from your pay before tax is calculated. This lowers your taxable income, so you keep more of what you earn.
For example, if your base salary is $80,000 and you package $15,000 in living expenses, your taxable income drops to $65,000. At the 2026–27 tax rates (excluding Medicare), you would save roughly $4,500 in tax (30% of $15,000), plus $300 in Medicare levy (2%). Your take-home pay increases by about $4,800 per year.
But salary packaging living expenses is not a free lunch. The Australian Tax Office (ATO) applies fringe benefits tax (FBT) to many packaged items, especially those that are not otherwise exempt. Some employers absorb the FBT, others pass it on. That can reduce the net benefit. Not-for-profit employers often have higher FBT caps, making packaging more valuable.
How salary packaging changes your offer comparison
When comparing job offers, the Salary Index is a useful tool to compare base gross salaries. The national line is $108,352 per year (index 100). A job paying $95,000 has an index of about 87.7. That tells you where the base salary sits relative to the average full-time adult ordinary-time earner.
But salary packaging living expenses is not reflected in the index. It is a separate benefit that boosts your net pay. To compare offers properly, you need to estimate the after-tax value of the packaging.
Example: Offer A: $100,000 base salary, no packaging. Offer B: $95,000 base salary with $15,000 salary packaging living expenses. Offer A has a higher index (92.3 vs 87.7). But after tax and Medicare, Offer A might give you about $73,500 take-home (using 2026–27 rates). Offer B, after packaging and tax, could give you about $73,800 take-home—slightly more. The packaging makes up for the lower base.
Of course, this depends on the expenses you actually incur and whether FBT applies. Always ask the employer for a salary packaging calculator or illustration.
Which living expenses can be packaged?
Common items include:
- Rent or mortgage payments (but FBT may apply unless the employer is a public hospital or certain charities)
- Utilities (electricity, gas, water)
- Groceries (subject to FBT caps)
- School fees (often FBT-exempt for certain employers)
- Health insurance premiums
Some employers restrict packaging to specific categories. Others use a third-party provider that sets limits. The ATO requires that packaged expenses be genuinely incurred and not reimbursed elsewhere.
State and industry context
Your location and industry affect the base salary index, which you can then adjust for packaging. For example, the states page shows that the ACT has an index of 109.9 (average $119,090), while Tasmania is 88.6 ($96,008). A job in Canberra with a $110,000 base and packaging is stronger than a Tasmanian job with $100,000 base and no packaging, even after adjusting for cost of living.
Industries also vary. Professional, scientific and technical services have an index of 114.7, while retail trade is 75.9. If you work in retail, salary packaging living expenses is less common because many retail awards do not provide for it. In healthcare and social assistance (index 97.8), packaging is more typical.
Tax and super considerations
Salary packaging living expenses reduces your taxable income, which also lowers the amount of superannuation guarantee (12% from 1 July 2026) your employer must pay if the packaging reduces your ordinary-time earnings. However, many employers calculate super on the gross salary before packaging. Check your contract.
Also, packaging can affect your eligibility for the tax-free threshold and the Medicare levy surcharge. If your packaged income drops below $135,000, you might avoid the 37% bracket or the surcharge. But the Medicare levy (2%) still applies to your taxable income after packaging.
How to read a job ad for salary packaging
Look for phrases like "salary packaging available" or "not-for-profit salary packaging". Ask:
- Which expenses are eligible?
- Is there a cap on the packaged amount?
- Does the employer pay the FBT or is it deducted from your salary?
- Can you package living expenses immediately or after a probation period?
Use the pay guides to check if your award allows salary packaging. Some modern awards have specific clauses; others are silent. If the ad does not mention packaging, you can still ask during negotiations.
The bottom line
Salary packaging living expenses can significantly increase your take-home pay, but it does not change your salary index. When comparing offers, calculate the net benefit of packaging and add it to the base salary for a fair comparison. The how the index works page explains how to convert gross salary to an index number. For more on related topics, see topics like salary negotiation and employee benefits.
Remember: the national minimum wage is $52,255 per year (index 48.2). Even with packaging, a job near that level may not provide enough to cover living expenses. Always consider the total remuneration package, not just the base salary.
Questions people ask
What does salary packaging living expenses mean?
Salary packaging living expenses is an arrangement where your employer allows you to pay for certain everyday costs—such as rent, mortgage interest, utilities, or groceries—from your pre-tax salary. This reduces your taxable income, so you pay less income tax and Medicare levy. However, some packaged items may attract fringe benefits tax (FBT), which can reduce the overall benefit. It is most common in not-for-profit organisations, hospitals, and some government roles, but private sector employers may also offer it. Always check the terms with your employer or a salary packaging provider.
How does salary packaging living expenses affect my salary index?
The salary index compares gross ordinary-time earnings before tax and before any salary packaging. For example, if your base salary is $90,000 per year, your index is about 83 (90,000 ÷ 108,352 × 100). Salary packaging does not change that gross figure. However, because packaging reduces your taxable income, your take-home pay can be higher than someone on the same gross salary without packaging. When comparing job offers, you should look at both the gross salary (for the index) and the net benefit of any packaging arrangement.
Can I salary package living expenses in any job?
No. Salary packaging living expenses is not a legal right; it depends on your employer's policy and your employment type. It is more common in the not-for-profit sector (where FBT caps are higher), public hospitals, and some government agencies. Many private sector employers do not offer it, or they limit packaging to items like cars or superannuation. Check your award or enterprise agreement—some modern awards allow salary packaging, but others do not. If a job ad mentions salary packaging, ask for details on what expenses are eligible and any FBT implications.