What You Can Salary Sacrifice in Australia and How It Affects Your Pay Index

What Can You Salary Sacrifice in Australia?

Salary sacrifice is a common way to reduce your taxable income by swapping part of your salary for a benefit. The Australian Tax Office (ATO) allows you to sacrifice a range of items, but not everything. Understanding what you can salary sacrifice in Australia helps you make the most of your pay while staying within the rules. This guide explains the most common options and how they relate to the national salary index.

Common Salary Sacrifice Items

Superannuation is the most popular salary sacrifice choice. You can contribute extra to your super fund beyond the 12% employer guarantee. These contributions are taxed at only 15% (up to the concessional cap), which is much lower than your marginal rate if you earn over $45,000. For example, if you earn $100,000 and sacrifice $10,000 into super, you save about $3,400 in tax (compared to 30% plus 2% Medicare). Your gross salary index stays at around 92.3 (based on $100,000 vs $108,352 national line), but your super balance grows faster.

Motor vehicles via a novated lease are another common option. You can salary sacrifice the lease payments, running costs, and even fuel. The benefit is that these costs come from pre-tax income, reducing your taxable income. However, if you use the car for private purposes, fringe benefits tax (FBT) may apply. Many employers offer a novated lease package that includes FBT management. The net effect on your salary index is neutral on gross earnings, but your after-tax position improves.

Work-related equipment such as laptops, tablets, or tools can be salary sacrificed if they are primarily for work. These are often exempt from FBT under the 'otherwise deductible' rule. For instance, a $2,000 laptop used 80% for work could save you around $800 in tax if you're in the 37% bracket. Again, your gross salary index doesn't change, but your effective spending power increases.

Other benefits include car parking, childcare (via salary packaging in some sectors), and even some health insurance premiums. Not all employers offer these, and some are limited to certain industries like healthcare or education. The ATO caps some benefits, such as entertainment, which may attract FBT.

What You Cannot Salary Sacrifice

You cannot salary sacrifice private expenses like rent, mortgage payments, groceries, or holidays. The ATO views these as personal living costs. Also, you cannot sacrifice your salary below the national minimum wage or your award rate. For example, if you earn the national minimum wage of $26.44 per hour (index 48.2), you cannot sacrifice any amount that would drop your hourly rate below that. Your employer must ensure your base pay meets legal minimums.

How Salary Sacrifice Affects Your Salary Index

The Salary Index measures gross ordinary-time earnings before any deductions. So salary sacrifice does not change your index number. If you earn $120,000 and sacrifice $20,000 into super, your gross salary is still $120,000, giving an index of 110.8 (above the national line of 100). However, your taxable income drops to $100,000, which affects your take-home pay and tax bracket.

But the index is useful for comparing your gross pay to the national average. If you are considering a salary sacrifice arrangement, remember that your gross pay is the benchmark. The how the index works page explains that the index uses ordinary-time earnings as defined by the ABS. Salary sacrifice is a post-earnings arrangement, so it doesn't alter your position on the index.

Tax and Super Considerations

From 1 July 2026, the super guarantee is 12% on your ordinary-time earnings up to $270,830. Salary sacrifice contributions are separate and count towards your concessional contributions cap ($30,000 per year). If you exceed the cap, the excess is taxed at your marginal rate plus an interest charge. The ATO also has rules for high-income earners: if your income plus concessional contributions exceed $250,000, you pay an extra 15% tax on contributions above that threshold.

Your tax bracket matters. For 2026-27, resident tax rates are: nil up to $18,200; 15% from $18,201 to $45,000; 30% to $135,000; 37% to $190,000; 45% above. Plus 2% Medicare levy. Salary sacrifice is most beneficial if you are in a higher bracket. For example, someone earning $150,000 (index 138.5) saves 37% tax on sacrificed amounts, plus Medicare, making it very attractive.

Examples of Salary Sacrifice and the Index

Example 1: Super sacrifice

• Gross salary: $120,000 (index 110.8)
• Sacrifice: $15,000 into super
• Taxable income: $105,000
• Tax saved: about $5,550 (37% + 2% Medicare = 39% on $15,000 = $5,850)
• Net pay after tax (estimate): $80,250 (from $105,000 taxable)
• Your gross index remains 110.8, but your retirement index improves.

Example 2: Novated lease

• Gross salary: $90,000 (index 83.1)
• Lease costs: $10,000 per year
• Taxable income after sacrifice: $80,000
• Tax saved: about $3,900 (30% + 2% = 32% on $10,000 = $3,200, plus some FBT)
• Net pay: $62,000 (approx)
• Again, gross index unchanged.

Where to Get More Information

For more details on salary sacrifice rules, see the pay guides and topics pages. You can also check your industry's typical pay levels on the industries page. If you are unsure whether a specific item can be salary sacrificed, ask your employer or a tax professional.