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Salary sacrifice can sound like a complicated tax trick — but it’s really a simple, legal way for both employers and employees in Australia to save money, enjoy more benefits, and plan smarter.
At KSH TAX, Perth’s leading accounting and tax agents, we help businesses and individuals understand how salary sacrifice works, how to set it up correctly, and how to make sure both sides benefit.
Let’s break down everything you need to know — clearly, simply, and with real examples.
Salary sacrifice (also called salary packaging) is an arrangement where an employee agrees to give up part of their cash salary in exchange for certain non-cash benefits — such as super contributions, a car lease, or rent payments.
Because these benefits are paid before tax is calculated, the employee’s taxable income reduces. The result? Lower income tax and more value from the same salary.
For employers, it’s a flexible way to offer additional perks without increasing overall payroll costs.
If you’re new to this topic, you can also read our full breakdown: What is Salary Sacrifice?
When you salary sacrifice, your employer diverts part of your gross (pre-tax) pay to cover an approved benefit. You then pay tax only on what remains.
Example:
If your salary is $90,000 and you salary sacrifice $10,000 into your super, you’ll only be taxed on $80,000 — reducing your income tax and building your retirement savings faster.
Here are the most common and tax-effective salary sacrifice options available:
One of the most popular and beneficial options.
You can salary sacrifice extra contributions into your super fund, where it’s taxed at 15% instead of your marginal income tax rate — potentially saving thousands annually.
Salary sacrificing a car lets you lease a vehicle using pre-tax dollars under a novated lease arrangement.
This can lower your taxable income and include costs like fuel, registration, and maintenance.
Some employers — especially in government or not-for-profit sectors — allow employees to package home loan or rent payments.
This can be a significant lifestyle benefit depending on your employer’s policy.
Laptops, tablets, and mobile phones primarily used for work are often eligible.
It’s a practical way to upgrade work tools while reducing out-of-pocket costs.
Non-profit and public health employees often enjoy the most generous packaging rules — sometimes up to $15,900 in tax-free benefits annually.
Key takeaway:
The benefit must be approved and form part of a written salary sacrifice agreement before income is earned. Not all employers offer every option, so always confirm with HR or your accountant.
Here’s how employees typically benefit:
Lower Taxable Income
By redirecting some of your income to pre-tax benefits, you could move into a lower tax bracket.
Better Long-Term Savings
Contributions to superannuation grow tax-effectively, helping you build wealth faster.
More Flexible Lifestyle Benefits
Salary packaging can cover things like vehicles or housing, reducing personal expenses.
Smoother Cash Flow
Deductions are automated from your salary, helping you manage budgets better.
These benefits combine to help employees maximise their take-home value without increasing their salary.
Applying for salary sacrifice is simple, but it must be done correctly. Here’s how:
Talk to Your Employer or HR Department – ask whether salary packaging options are available in your workplace.
Identify What You Can Salary Sacrifice – check which benefits are approved and whether they attract Fringe Benefits Tax (FBT).
Formalise the Agreement – ensure there’s a written agreement before the arrangement begins.
Check Your Payslip – your salary sacrifice contributions should be listed clearly on your payslip.
Once set up, it’s important to review your arrangement annually — or sooner if your income or employment situation changes.
Salary sacrifice isn’t just beneficial for employees — it also offers strategic advantages for employers.
Here’s why many Australian businesses use salary packaging:
Attract and Retain Talent
Salary sacrifice helps employers stand out in a competitive job market. Offering flexible benefits can make roles more appealing without raising salaries.
Boost Employee Satisfaction
Workers value options that help them save on tax and expenses. Happier employees often stay longer.
Cost-Efficient Remuneration
Employers can provide additional benefits without significantly increasing payroll costs.
Simplified Super Contributions
Employers can make extra super contributions through salary sacrifice, often at no additional administrative cost.
In short, salary sacrifice employer benefits go beyond just saving tax — they help build loyalty, satisfaction, and workplace morale.
While salary sacrifice can be a win-win, it must be managed carefully to remain compliant with ATO rules.
Employers should:
Keep written agreements on file.
Understand which benefits attract Fringe Benefits Tax (FBT).
Report sacrificed amounts correctly on payment summaries.
Offer fair and equal access to eligible employees.
Mistakes in reporting or FBT calculations can lead to penalties — so having an expert like KSH TAX review your setup can save time, money, and headaches.
Salary sacrifice is available to most employees in Australia who are paid through the PAYG (Pay As You Go) system.
Eligible employees: full-time, part-time, and some contract staff.
Ineligible: casual workers or those not on a consistent payroll system may have limited options.
Employers are not legally required to offer salary packaging — it’s typically optional and depends on company policy.
That said, industries such as healthcare, education, and not-for-profit sectors often provide some of the best salary sacrifice opportunities.
There’s no single “best” way to salary sacrifice — but there are smart strategies that can make it more rewarding.
For Employees:
Prioritise super contributions for long-term tax benefits.
Keep track of contribution caps to avoid excess tax.
Review your payslip regularly to ensure deductions are accurate.
For Employers:
Seek advice before introducing or expanding salary packaging.
Understand FBT implications for each type of benefit.
Communicate clearly with employees to avoid confusion.
At KSH TAX, we assist both employers and employees in selecting the most effective salary sacrifice options — and ensuring all arrangements comply with ATO guidelines.
Whether you’re an employer or employee, the setup process is straightforward with professional help:
Define Your Goals – Is the aim to save tax, attract talent, or manage benefits efficiently?
Identify Suitable Benefits – Based on your industry and employment type.
Formalise the Agreement – Ensure it’s documented before income is earned.
Ensure Compliance – Understand how FBT, PAYG, and reporting apply.
Review Regularly – Adjust as income, benefits, or ATO rules change.
KSH TAX can help you structure and document your salary sacrifice arrangement, ensuring full compliance and maximum benefit.
One of the most important parts of any salary sacrifice arrangement is understanding how Fringe Benefits Tax (FBT) applies — because it can significantly affect the overall tax outcome for both employers and employees.
FBT is a tax employers pay on certain benefits they provide to employees (or their associates) in place of salary or wages.
In other words, if an employee receives a non-cash benefit instead of regular pay, that benefit may attract FBT.
Common examples of fringe benefits include:
Personal use of a company car (Salary Sacrificing a Car)
Payment of private expenses such as rent or mortgage (Salary Sacrifice Rent or Salary Sacrifice Mortgage)
Entertainment expenses like meals or events
Certain living expense reimbursements in not-for-profit organisations
It depends on the type of benefit.
Some salary sacrifice arrangements do create fringe benefits, while others (like extra super contributions) don’t attract FBT.
Here’s a quick breakdown:
Superannuation contributions — Generally not subject to FBT.
Cars, rent, and other lifestyle benefits — Often subject to FBT.
Work-related items (e.g., laptops, phones used mainly for work) — Usually FBT-exempt.
The ATO salary sacrifice guidelines specify that benefits must be provided as part of a valid, pre-tax arrangement — and the employer is responsible for any FBT liabilities that arise.
When an employer offers salary packaging (another term for salary sacrifice), they must consider how the arrangement impacts both income tax and FBT.
For example:
The employee’s taxable income may reduce, since they’re giving up part of their salary for non-cash benefits.
However, the employer may still owe FBT on certain benefits.
The taxable value of the benefit determines the FBT amount, which the employer reports to the ATO.
That’s why it’s important for employers to correctly calculate, report, and pay FBT on time — and for employees to understand which benefits actually save tax after FBT is applied.
Let’s say Sarah earns $90,000 per year and decides to salary sacrifice a car through a novated lease worth $15,000 per year.
Her taxable income drops to $75,000, reducing her income tax — but the employer may still owe FBT on the car benefit (depending on how much private use is involved).
If, however, Sarah had instead salary sacrificed extra super contributions, no FBT would apply.
This example highlights why it’s crucial to calculate both income tax savings and potential FBT costs before deciding on any arrangement.
Yes — salary sacrificing generally reduces taxable income for the employee because the sacrificed amount is deducted from pre-tax salary.
However, if the benefit attracts FBT, the employer’s tax obligations may offset some of those savings.
That’s why FBT and salary sacrifice should always be viewed together — not in isolation.
Confirm whether the benefit is FBT-exempt, taxable, or partially exempt.
Use the ATO’s salary sacrifice and FBT calculators for accuracy.
Keep detailed records of all benefits and agreements.
Seek professional advice before implementing large or multiple salary packaging options.
At KSH TAX, we help businesses and employees identify which benefits are FBT-effective, handle reporting, and ensure compliance with ATO salary sacrifice and FBT rules — so you can enjoy the benefits without the risk.
Salary sacrifice can be powerful, but getting it wrong can lead to unnecessary tax or compliance issues.
At KSH TAX, we help:
Employees identify the best salary sacrifice options for their situation.
Employers design compliant, cost-effective remuneration packages.
Both parties ensure contributions and deductions are accurately reported to the ATO.
Our tax specialists make the process simple, transparent, and beneficial for everyone involved.
Contact us for a salary sacrifice review – we’ll help you understand what you can salary sacrifice, estimate your potential tax savings, and make sure your setup is fully compliant.
Salary sacrifice can be a win-win arrangement when done right. Employees save on tax and enjoy valuable benefits, while employers gain happier, more motivated staff.
The key is understanding how it works, what can be sacrificed, and when to seek professional help.
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