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Salary sacrifice — also known as salary packaging — is an arrangement where you agree to exchange part of your pre-tax salary for certain non-cash benefits. These benefits might include extra super contributions, a company car, or even work-related items such as a laptop or phone.
The main idea behind salary sacrifice is to reduce your taxable income, allowing you to keep more of your money or grow your savings more effectively. However, while salary packaging has clear financial advantages, it’s not without its drawbacks. Understanding both sides of the equation helps you make informed decisions that suit your personal and financial situation.
If you’re considering contributing part of your salary into your super fund, we recommend reading our guide on Salary Sacrificing to Super to understand how it works and what limits apply.
Before diving into the disadvantages, let’s look at the key advantages of salary packaging and why many Australians use it as part of their financial strategy.
When you salary sacrifice, the amount you contribute toward approved benefits is deducted before tax. This can lower your taxable income, meaning you could pay less tax overall.
One of the most common benefits is salary sacrifice into super. By making additional pre-tax contributions, you’re potentially building a stronger retirement fund while taking advantage of concessional tax rates (15%) inside your super. This can be especially useful if you’re in a higher income bracket.
Salary packaging isn’t limited to super. Many employers allow packaging items such as laptops, cars, or mobile phones. These benefits can reduce your out-of-pocket expenses for items you’d likely buy anyway.
Salary packaging can help you save consistently by committing funds to long-term benefits such as superannuation or health insurance premiums. It’s a simple way to make sure your money works harder for you.
Now, let’s explore the other side — the disadvantages of salary sacrifice, which are just as important to understand. Not every worker benefits equally, and in some cases, it can create unintended financial complications.
Since you’re redirecting a portion of your salary before tax, your take-home pay will naturally decrease. While this might be fine for higher earners, it can strain the budgets of those with tighter cash flow or ongoing expenses.
Some entitlements are calculated based on your gross income. This means that salary sacrificing can reduce things like overtime rates, annual leave loading, and even government benefits such as parental leave payments or Centrelink support. It’s essential to check how your adjusted income affects these areas before committing.
Salary packaging can get complicated, especially if you’re managing multiple benefits or super contributions. There’s paperwork to track, limits to remember, and tax reporting rules to comply with. Mistakes — such as exceeding your salary sacrifice super limit — can result in extra tax or penalties.
Concessional super contributions (which include salary sacrifice amounts) have annual limits. For the 2025 financial year, the limit is $27,500. If you go over this, the excess may be taxed at your marginal rate, cancelling out any tax advantage you hoped to gain.
Those in lower tax brackets may find limited benefit in salary sacrifice arrangements, since the tax savings might not outweigh the reduced take-home pay. It’s often more effective for people earning moderate to high incomes who can afford to divert funds without affecting daily cash flow.
Not all employers offer salary packaging, and some restrict the types of benefits you can include. Even where available, administration fees or fixed structures might make it less worthwhile.
| Advantages | Disadvantages |
|---|---|
| Reduces taxable income | Lowers take-home pay |
| Boosts superannuation balance | May reduce other entitlements |
| Access to non-cash benefits | Complex to manage and track |
| Encourages disciplined savings | Risk of exceeding contribution limits |
| Potential long-term tax savings | Not equally beneficial for all income levels |
When evaluating the salary sacrifice pros and cons, the key is balance — ensuring the long-term tax or retirement benefits outweigh any short-term financial constraints.
For example, salary sacrificing into super works best when viewed as a long-term investment. You won’t have access to that money until you meet the superannuation release conditions — so it’s important to make sure you can afford to lock it away.
Deciding whether to salary sacrifice depends on your individual situation. Consider:
Speaking to a registered tax agent or financial advisor can help clarify whether this strategy aligns with your financial goals.
Salary sacrifice and superannuation strategies can offer powerful financial advantages — but they come with important trade-offs. Reduced take-home pay, complex rules, and contribution caps can all affect how much benefit you truly gain.
Before committing, assess the pros and cons of salary packaging in the context of your own goals, or speak to an accountant to model different scenarios. With the right approach, salary sacrifice can be a valuable tool for tax efficiency and long-term wealth building — as long as it’s done with clarity and purpose.
If you would like professional advice regarding salary sacrifice, feel free to reach out to us today.
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