Salary Packaging Explained

Salary packaging (also called salary sacrifice) swaps part of your pre-tax salary for something your employer pays for instead. Because the swapped dollars never become taxable income, each one goes further than a dollar from your own pocket.

Most people only ever hear about packaging extra super. Here's the rest of the menu — cars, gadgets, and the golden ticket reserved for charity and hospital workers.

Buying from your own pocket means post-tax dollars: at a 30% marginal rate (the tax on your last dollar) plus the 2% Medicare levy, earning $1,000 leaves you $680 to spend. Package the expense instead and the $1,000 leaves your salary before tax exists — the $320 that would've gone to the ATO simply doesn't.

The catch that keeps this from being infinite free money is FBT — fringe benefits tax, a tax your employer pays on most perks, at the top personal rate. If FBT applies at full force, the saving usually evaporates. The whole game is the exceptions.

Certain work-related items are FBT-exempt, so your employer can package them with no FBT sting: a laptop, phone or tablet used mainly for work, plus protective clothing and tools of trade.

Package a $2,000 work laptop and you pay with $2,000 of pre-tax salary instead of needing to earn roughly $2,940 to buy it yourself at a 32% marginal rate. Generally it's one of each type of item per year, and "mainly for work" has to be true. If you were buying the device anyway, this is the lowest-effort packaging win going.

A novated lease is a three-way deal: you pick a car, a finance company owns the lease, and your employer pays the lease and running costs — fuel or charging, insurance, servicing, rego — straight out of your salary, mostly pre-tax.

Cars normally attract FBT, softened by a statutory formula, so traditional novated leases range from mildly clever to barely worthwhile. The game-changer: eligible electric vehicles under the luxury car tax threshold are currently FBT-exempt, which can make packaging an EV dramatically cheaper than buying the same car with your own money. Before signing, remember: leases run for years, exit costs are real, there's usually a balloon payment (a lump sum owed at the end), and quotes lean on sunny assumptions. Compare against simply buying the car, using the same numbers.

Work for a public hospital or an eligible not-for-profit — charities, some community organisations — and the rules flip: you can package everyday living expenses like rent, your mortgage or groceries from pre-tax pay, up to a capped amount each FBT year. The caps run to several thousand pre-tax dollars a year — higher for charity workers, a bit lower for hospital staff — often with a separate extra allowance for meals out and accommodation. Using the cap can be worth a few thousand dollars of extra take-home every year.

It exists deliberately: these sectors can't match corporate salaries, so the tax system sweetens the deal. If you work in health or for a charity and aren't packaging, you're likely donating money to the ATO that was earmarked for you.

Rules of thumb: the higher your marginal rate, the bigger every packaging win. FBT-exempt items are near-free wins if you were spending the money anyway. Novated leases need genuine scrutiny — especially non-EVs. And the NFP caps are the closest thing Australian tax has to free money for eligible workers.

Two footnotes: packaging reduces your taxable income, but a reportable figure can still count for HECS repayments and some benefits. And your employer has to offer packaging — payroll is your first call. Start with the version everyone can do: run pre-tax super contributions through our Salary Sacrifice Calculator and watch what happens to your tax bill.