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Category: Tax

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  • Tax
  • November 3, 2025

Salary Sacrificing to Super Explained | Benefits & Limits

When it comes to building wealth and reducing tax in Australia, salary sacrificing to super is one of the most effective strategies available. It’s simple in concept, powerful in execution — and when done right, it can help you save thousands in tax while growing your retirement balance faster. At KSH TAX, Perth’s leading accounting and tax agents, we help employees and employers structure salary sacrifice arrangements correctly to stay compliant and get the most out of every dollar. Let’s explore how it works. What Does Salary Sacrifice to Super Mean? Salary sacrificing to super (also known as salary sacrifice into superannuation) means you choose to have part of your pre-tax salary paid directly into your super fund instead of receiving it as take-home pay. That amount is then treated as a concessional (before-tax) contribution and taxed at just 15% inside your super fund, instead of your normal income tax rate (which could be as high as 45%). So, if your marginal tax rate is higher than 15%, you’re effectively redirecting part of your income into a lower-tax environment — saving on tax now while boosting your retirement savings for later. Salary Sacrifice vs Voluntary Contribution It’s easy to confuse salary sacrifice with voluntary contributions, but there’s a key difference: Salary sacrifice (pre-tax) – Paid directly from your salary before tax. These are concessional contributions. Voluntary contributions (after-tax) – Paid from your take-home pay after tax, often to top up your super balance. These are non-concessional contributions. Both help you grow your super, but only salary sacrifice reduces your taxable income. For example, if you’re earning $90,000 a year and salary sacrifice $10,000 into super, your taxable income drops to $80,000 — saving you income tax right away. Benefits of Salary Sacrificing to Super There’s a reason many Australians are turning to this strategy — it offers both short- and long-term benefits: Tax savings – Contributions are taxed at 15% inside your fund instead of your marginal tax rate. Increased retirement savings – You grow your super faster without having to budget extra money from take-home pay. Budget control – Because it’s automated through payroll, you can consistently invest for your future without the temptation to spend. Employer compliance – Employers also benefit from supporting salary packaging, improving retention and employee satisfaction (see Salary Sacrifice for Employers). The earlier you start, the more compounding works in your favour. How Much Super Can I Salary Sacrifice? This is one of the most common questions we hear at KSH TAX — and it’s a crucial one. In Australia, there’s an annual concessional contribution cap. As of now, you can contribute up to $27,500 per financial year in total concessional contributions. This cap includes: Your employer’s compulsory Super Guarantee contributions (currently 11.5% of your salary), and Any salary sacrifice contributions you make. For example: If your employer pays $9,000 in compulsory super, you can contribute an additional $18,500 through salary sacrifice without exceeding the cap. If you go over the cap, the extra amount is taxed at your marginal rate, which defeats the purpose — so planning is essential. At KSH TAX, we help you calculate the optimal contribution amount based on your salary, tax bracket, and goals. Salary Sacrifice Super Example Let’s break it down with real numbers. Scenario: James earns $100,000 per year. Without salary sacrifice, his taxable income is $100,000, and his tax (excluding Medicare levy) is roughly $22,967. He decides to salary sacrifice $10,000 into his super. His taxable income drops to $90,000. His income tax reduces by about $3,700. Inside his super fund, the $10,000 is taxed at 15% ($1,500). Net tax saved: $2,200 — while increasing his super balance by $8,500 after contributions tax. That’s tax efficiency in action. Salary Sacrifice Super vs Voluntary Contribution Both strategies grow your super, but which one is better? Type When It’s Paid Taxed At Main Benefit Salary Sacrifice (Pre-Tax) Before tax 15% Reduces taxable income, boosts super efficiently Voluntary Contribution (After-Tax) After tax 0% (contributions made from net income) May be eligible for government co-contributions In summary: If your income tax rate is higher than 15%, salary sacrifice is usually more tax-efficient. If you’ve already maximised your concessional cap, voluntary contributions can still grow your super tax-free inside the fund. Can You Withdraw Salary Sacrifice Super? Generally, no — not until you meet a “condition of release.” Salary sacrifice super contributions are locked away like other super savings. You can usually only access them: After reaching your preservation age (between 55 and 60, depending on your birth year) and retiring, or Under limited conditions such as severe financial hardship, permanent disability, or the First Home Super Saver Scheme. So, while it’s great for long-term wealth building, it’s not suitable if you might need quick access to your money. Should I Salary Sacrifice Super? If you’re earning a moderate to high income, salary sacrificing into super can be one of the smartest tax strategies available. You should consider it if you: Pay more than 15% tax on your income, Want to increase your retirement savings, and Have room under your concessional cap. However, it might not be ideal if: You’re on a lower income, You need more cash flow day-to-day, or You’re close to retirement and risk exceeding contribution limits. For a balanced view, read Pros & Cons of Salary Sacrifice — it explains situations where the numbers don’t stack up. Salary Sacrifice and Superannuation for Employers Employers play a key role in setting up salary sacrifice correctly. It must be: Agreed upon in writing before income is earned, Processed through payroll as pre-tax contributions, and Reported correctly on payslips and to the ATO. Done right, it’s win-win — employees enjoy tax benefits, and employers improve job satisfaction and retention without increasing payroll costs. KSH TAX helps employers set up compliant payroll systems and calculate the correct contribution amounts under Australian superannuation law. Talk to Us — Your Super Salary Sacrifice Specialists At KSH TAX, we make salary sacrifice easy

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  • Tax
  • November 2, 2025

Salary Sacrifice for Employers and Employees & FBT Benefits Exlained

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. Understanding Salary Sacrifice — A Quick Refresher 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? Salary Sacrifice for Employees — How It Works 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. What Can You Salary Sacrifice in Australia? Here are the most common and tax-effective salary sacrifice options available: 1. Superannuation Contributions 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. 2. Cars (Novated Lease) 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. 3. Mortgage or Rent Payments 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. 4. Work-Related Items 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. 5. Living Expenses (for Non-Profit Employees) 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. Benefits of Salary Sacrifice for Employees Here’s how employees typically benefit: Lower Taxable IncomeBy redirecting some of your income to pre-tax benefits, you could move into a lower tax bracket. Better Long-Term SavingsContributions to superannuation grow tax-effectively, helping you build wealth faster. More Flexible Lifestyle BenefitsSalary packaging can cover things like vehicles or housing, reducing personal expenses. Smoother Cash FlowDeductions 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. How to Apply for Salary Sacrifice 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 for Employers — How It Works and Why It Matters Salary sacrifice isn’t just beneficial for employees — it also offers strategic advantages for employers. Employer Benefits of Offering Salary Sacrifice Here’s why many Australian businesses use salary packaging: Attract and Retain TalentSalary sacrifice helps employers stand out in a competitive job market. Offering flexible benefits can make roles more appealing without raising salaries. Boost Employee SatisfactionWorkers value options that help them save on tax and expenses. Happier employees often stay longer. Cost-Efficient RemunerationEmployers can provide additional benefits without significantly increasing payroll costs. Simplified Super ContributionsEmployers 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. Employer Responsibilities and ATO Compliance 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. Who Can Salary Sacrifice? 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. Salary Sacrifice Options and Best Practices 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:

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  • Tax
  • November 2, 2025

Salary Packaging/Sacrificing Your Mortgage: Is It Worth It?

If you’ve ever wondered whether you can salary sacrifice your mortgage, the short answer is yes — but only in some cases. In Australia, salary packaging a mortgage allows you to make home loan repayments from your pre-tax income, potentially saving you thousands in tax. However, the rules are strict, and not every employer or lender allows it. Let’s break down exactly how salary sacrifice into a mortgage works, who qualifies, and whether it’s actually worth it. What Does Salary Sacrificing a Mortgage Mean? Salary sacrificing (also called salary packaging) is when you and your employer agree to redirect part of your salary before tax is applied — typically towards benefits like a car, laptop, or superannuation. When it comes to salary sacrificing a mortgage, that pre-tax portion is instead paid directly to your home loan account by your employer. The arrangement can help you reduce taxable income and pay down your mortgage faster. This setup is similar in concept to salary sacrificing to super, but instead of boosting your retirement savings, you’re building home equity. How Salary Sacrificing a Mortgage Works Here’s how it typically works in practice: You and your employer enter a written agreement to salary sacrifice a fixed amount each pay cycle. The sacrificed amount is deducted from your gross income (before tax). Your employer sends the money straight to your lender to repay your mortgage. Because the repayment comes out of your pre-tax pay, your taxable income decreases, which can lower the tax you owe at the end of the year. Example: Let’s say you earn $100,000 annually and agree to salary sacrifice $10,000 towards your mortgage. Your taxable income drops to $90,000. That could mean significant annual tax savings — depending on your marginal rate — while helping you clear your loan faster. Salary Sacrifice vs Regular Mortgage Repayments Aspect Regular Repayment Salary Sacrifice Repayment Payment Source After-tax income Pre-tax income Taxable Income Higher Lower Employer Role None Required Accessibility Universal Limited to certain sectors The key difference is the tax timing — whether your repayments come out before or after tax is calculated. Who Can Salary Sacrifice a Mortgage in Australia? Not everyone can use this strategy. In most cases, salary sacrificing a mortgage is only available to: Government employees Workers in not-for-profit organisations (like public hospitals, charities, or community services) Employees under specific enterprise or workplace agreements Private-sector workers generally cannot salary package home loan repayments unless explicitly allowed by their employer and compliant with ATO salary packaging rules. Always check with your HR department or payroll provider before making assumptions — and confirm that your lender accepts employer-directed payments. Benefits of Salary Sacrificing a Mortgage When done correctly, salary sacrificing a mortgage can offer several benefits: Lower taxable income: Reduce the income you’re taxed on, which could drop you into a lower tax bracket. Faster debt reduction: Every pre-tax dollar you redirect to your mortgage pays down principal faster. Potential interest savings: Clearing your balance sooner can save thousands in interest over the loan’s life. Convenience: Automatic deductions make repayments consistent and disciplined. These are the same types of advantages that make salary sacrifice super benefits so popular — just applied to your home loan instead. Downsides and Considerations While the tax advantages sound appealing, there are several things to keep in mind: Not all employers or lenders allow it. It’s generally restricted to the public or not-for-profit sectors. Fringe Benefits Tax (FBT) may apply if the benefit isn’t exempt. This can offset the potential tax savings. Reduced take-home pay: Because the sacrifice occurs before tax, your net pay will drop — which can affect day-to-day cash flow. Less flexibility: Once set up, funds go directly to the lender. You can’t redirect them without employer approval. Impact on superannuation: Sacrificing to your mortgage instead of super could slow your long-term retirement growth. To understand potential FBT implications, check out our guide on Fringe Benefits Tax and Salary Packaging. Salary Sacrifice Mortgage vs Salary Sacrifice to Super Both options use pre-tax income, but they serve different goals. Goal Salary Sacrifice Super Salary Sacrifice Mortgage Purpose Boost retirement savings Pay down home loan faster Access Locked until retirement Immediate benefit (reduced debt) FBT Risk None Possible Employer Requirement Common Restricted If your goal is to retire early with more savings, salary sacrificing to super might deliver better long-term returns. If your focus is on debt reduction and home ownership, salary sacrificing a mortgage could make sense — provided your employer allows it and FBT doesn’t apply. How to Set Up a Salary Sacrifice Mortgage Check eligibility: Ask your employer whether mortgage payments can be packaged. Consult your lender: Ensure they can receive payments directly from your employer. Draft a written agreement: Salary sacrifice arrangements must be formalised. Review tax impact: Confirm with your accountant or tax agent that you’ll actually save after FBT. Monitor results: Regularly review your payslips and loan statements to confirm everything’s applied correctly. Example: Salary Sacrificing a Mortgage in Action Let’s say: Gross income: $110,000 Amount sacrificed to mortgage: $15,000 New taxable income: $95,000 Depending on your marginal tax rate, you could save roughly $4,500 in tax each year. That’s $4,500 more applied to your mortgage principal instead of the ATO. However, the benefit only works if your employer and lender both participate — and if no FBT is triggered. Should You Salary Sacrifice Your Mortgage? It can be a smart strategy if you’re eligible and your employer offers it — especially if your goal is to reduce debt and lower taxable income simultaneously. However, it’s not for everyone. The complexity, limited eligibility, and potential FBT exposure mean you should always get professional advice before making changes. If you want a simpler pre-tax benefit with fewer risks, salary sacrificing into superannuation is often the more flexible option. Final Thoughts Salary sacrificing your mortgage can be an effective way to reduce tax and build home equity faster — but it’s not a one-size-fits-all solution. Each situation depends on your

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  • Tax
  • November 2, 2025

Salary Sacrifice for Teachers to Maximise Your Tax Savings

If you’re a teacher employed by the Department of Education or a private school, you may have access to a range of salary sacrifice or salary packaging options that can help you keep more of your income. Salary sacrificing for teachers simply means redirecting part of your pre-tax salary towards specific benefits — like extra super contributions, professional tools, or novated car leases — before tax is calculated. This lowers your taxable income and can help you save more in the long run. Let’s break down how it works, what you can include, and whether it’s the right move for you. What Is Salary Sacrifice and How Does It Work for Teachers? Salary sacrifice (also known as salary packaging) is an arrangement between you and your employer where part of your before-tax salary is used to pay for approved benefits. For teachers, these benefits are usually managed through the Department of Education salary sacrifice program (or DET salary packaging) depending on your state or employer. Essentially, your employer deducts certain expenses or contributions before calculating your tax — helping you reduce your taxable income and boost your financial outcomes. In other words, salary sacrifice lets teachers exchange part of their salary today for financial advantages tomorrow. What Can Teachers Salary Sacrifice? Teachers generally have several options when it comes to salary packaging. These may include: Superannuation contributions – Boost your retirement savings through pre-tax super contributions. Portable electronic devices – Laptops, tablets, or mobile phones used primarily for work. Novated car leases – Package a vehicle under a three-way agreement between you, your employer, and a leasing company. Professional development expenses – Training or education directly related to your job. One common question is: can teachers salary sacrifice mortgages? Unfortunately, under most Department of Education and public sector salary packaging policies, mortgage payments aren’t eligible for salary sacrifice. You can, however, maximise your savings through other pre-tax benefits like super contributions or vehicle leases. Benefits of Salary Sacrifice for Teachers Salary sacrificing can offer a range of benefits for teachers, including: Reduced taxable income – Paying for benefits pre-tax can lower how much income tax you owe each pay cycle. Faster super growth – Contributing to super through salary sacrifice means your retirement savings grow faster thanks to compound returns. Simplified financial management – Bundling eligible expenses through payroll can make budgeting easier. Access to ATO-approved benefits – All benefits must comply with the Australian Tax Office (ATO) and Department of Education guidelines, ensuring compliance and peace of mind. When structured correctly, teacher salary packaging can lead to noticeable tax savings and a healthier financial position over time. Example: How Salary Sacrifice into Super Works for Teachers Let’s take a simple example. Suppose Sarah, a full-time teacher earning $85,000 a year, decides to salary sacrifice $200 a month into her super. Over a year, that’s $2,400 redirected from her pre-tax salary. Because the contribution is made before tax, Sarah pays less income tax while increasing her retirement savings. Her employer contributes the sacrificed amount to her super fund, which is taxed at just 15% — lower than her marginal tax rate. This small change can boost her super balance by tens of thousands of dollars over her career. Important Considerations Before Salary Sacrificing Before setting up a salary sacrifice arrangement, teachers should keep the following in mind: Check your eligibility – Not all education departments or schools offer the same salary packaging options. Understand contribution limits – The salary sacrifice super limit forms part of your concessional (before-tax) contribution cap. Review your overall benefits – Make sure your take-home pay still covers everyday expenses comfortably. Stay compliant – Ensure all benefits meet ATO and Department of Education rules. If you’re considering salary sacrificing specifically for super, see our related guide: Salary Sacrificing to Super – How It Works in Australia. How to Set Up Salary Sacrifice as a Teacher Getting started is straightforward, but it’s important to follow the right steps: Review your employer’s salary packaging policy — Each education department or school has specific approved benefits. Seek approval — You may need to submit a written request or form through HR or payroll. Confirm contribution details — Decide how much of your pre-tax salary to allocate to each benefit. Monitor and adjust — Review your payslips and super contributions regularly to ensure everything aligns with your goals. Teachers working under the Department of Education salary sacrifice program can usually manage these changes via their HR or payroll portal. Get Expert Help Before You Commit While salary sacrifice can be highly beneficial, it’s not one-size-fits-all. The right structure depends on your income, tax bracket, super balance, and long-term goals. If you’re unsure how to make the most of your teacher salary packaging options, our team can help you review your current setup and identify the most tax-effective approach. Reach out today for personalised salary sacrifice advice and make sure your teaching income is working as hard as you do. Contact us for a free consultation. ALSO READ: Mortgage salary sacrifice – all you need to know Pros and cons of salary packaging Understanding salary sacrificing for employers & employees plus FBT Salary sacrificing a car – benefits & implications

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  • Tax
  • November 1, 2025

Salary Packaging for Non Profit Organisations: A Complete Guide

For employees in Australia’s not-for-profit (NFP) sector, salary packaging is one of the biggest perks available. It’s a way to legitimately reduce your taxable income and take home more of your pay — without your employer increasing your salary. If you work for a charity, public benevolent institution (PBI), hospital, or community organisation, understanding how this works could make a meaningful difference to your finances. Let’s break down what salary packaging means for NFPs, how it works, and how you can get started. What Is Salary Packaging for Non Profit Organisations? Salary packaging (sometimes called salary sacrificing) is an agreement between you and your employer to use part of your pre-tax income to pay for personal expenses like rent, mortgage, or car repayments. Normally, these are things you’d pay from your after-tax salary. But when packaged, they come out before tax — reducing your taxable income and boosting your take-home pay. For not-for-profit organisations, there’s an extra advantage: FBT exemptions and rebates. The Australian Tax Office (ATO) allows many NFP employers to offer certain benefits completely tax-free up to set annual limits. These exemptions make salary packaging particularly valuable for charities and community-focused organisations. How Salary Packaging Works for NFP Employees Here’s how it works in practice: You and your employer agree to package part of your salary. That portion is used to cover eligible expenses instead of being paid to you as cash. Because those payments are made before tax, your taxable income goes down — meaning you pay less tax and keep more of your pay. For NFP employees, these packaged amounts are exempt from Fringe Benefits Tax (FBT) up to a limit. Once you reach your annual cap, any additional packaged amount may attract FBT, which can reduce your savings. Salary Packaging Limits for NFPs How much you can package depends on the type of organisation you work for: Public Benevolent Institutions (PBIs) and Health Promotion Charities: up to $15,900 per year, tax-free Public and Not-for-Profit Hospitals and Ambulance Services: up to $9,010 per year, tax-free Other Not-for-Profit Organisations eligible for an FBT rebate: smaller caps, but still beneficial This cap resets each Fringe Benefits Tax year (1 April to 31 March). What You Can Package NFP employees can package a broad range of personal and living expenses, including: Mortgage or rent payments Car loans or lease payments Credit card repayments Meal entertainment and accommodation Utility bills Superannuation contributions Many employees also choose to combine packaging with salary sacrificing to super, which can help build long-term retirement savings while maximising tax efficiency. If you’d like to understand that strategy better, see our article on Salary Sacrificing to Super. Example: Salary Packaging for a Charity Worker Let’s say James works for a registered charity (a PBI) and earns $100,000 per year. He chooses to package: $15,900 towards his mortgage $2,650 for meal entertainment Without salary packaging: Taxable income: $100,000 Approx. tax payable: $22,967 Take-home pay: around $77,033 With salary packaging: Taxable income: $81,450 Approx. tax payable: $17,367 Take-home pay: around $82,633 That’s an extra $5,600 per year back in James’s pocket — simply by using the NFP salary packaging rules. Why Salary Packaging Is Especially Valuable for NFPs Most private sector employees can only package limited benefits like super contributions or novated leases. But NFPs have an additional tax advantage because of the Fringe Benefits Tax exemption caps. This allows organisations in the community sector to offer employees a genuine, legal financial benefit — one that increases job satisfaction and retention without increasing payroll costs. It’s a win-win: Employees keep more of what they earn. Employers attract and retain skilled staff at a lower overall cost. If you’re unsure which benefits apply to your specific organisation, it’s best to get tailored advice — as eligibility and limits can vary. Common Misunderstandings About NFP Salary Packaging A few myths often cause confusion: “It’s only for senior staff.”False. Most full-time and part-time NFP employees can access packaging if their employer offers it. “It reduces my super or leave.”It can, depending on how your employer calculates entitlements. Always confirm before setting up your package. “It’s the same everywhere.”Each organisation’s FBT status determines its cap, so the limits aren’t universal. Understanding these details upfront ensures you maximise your benefit and stay compliant. Get Professional Guidance Before You Start Salary packaging for not-for-profit organisations is one of the most generous tax benefits available in Australia — but only if structured correctly. Rules can differ between organisation types, and not all expenses qualify. Getting expert guidance ensures you stay within ATO limits and truly maximise your take-home pay. Want to find out how much you could save through salary packaging? Contact KSH TAX, Perth’s trusted accounting and tax agents, for a personal salary packaging review tailored to your organisation and income. You Might Also Like Salary Sacrificing to Super Salary Sacrifice Mortgage FBT, Benefits & Implications of Salary Sacrifice for Employers and Employees Pros & Cons of Salary Sacrifice You Should Know Salary Packaging a Car – Benefits & Implications

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  • Tax
  • November 1, 2025

Salary Sacrificing a Car – Is It Worth It in Australia?

If you’ve ever heard a colleague mention that they “salary sacrificed” their car and saved on tax, you might have wondered — how does that actually work? Salary sacrificing a car, often done through what’s called a novated lease, is one of the most popular salary packaging options in Australia. It can help you drive a new car while paying less tax — but only if it’s structured properly. At KSH TAX, Perth’s leading accounting and tax agents, we’ve helped both employees and employers set up salary sacrifice arrangements that make financial sense and stay fully compliant with ATO rules. Let’s unpack what salary sacrificing a car really means, how it works, and whether it’s worth it for you. What Does Salary Sacrificing a Car Mean? In simple terms, salary sacrificing a car means using part of your pre-tax salary to pay for a vehicle and its running costs. You agree with your employer to “sacrifice” part of your cash salary in exchange for a car benefit. Instead of paying for the car from your after-tax income, the lease payments (and often fuel, insurance, and servicing) are covered directly through your salary. This arrangement is usually done through a novated lease — a three-way agreement between: You (the employee) – who drives the car. Your employer – who makes the lease payments on your behalf. A finance or leasing company – who owns the car during the lease period. Because these costs come out of your pre-tax pay, your taxable income decreases, which can reduce the total tax you pay each year. (If you’re new to the concept of salary sacrifice, check out our full guide on What Is Salary Sacrifice for a broader overview.) How Does Salary Packaging a Car Work in Australia? Here’s how it generally works step-by-step: Choose a car – You select a new or used vehicle that meets your needs. Agree on a novated lease – Your employer and the lease company enter an agreement that allows lease payments to be deducted from your salary. Bundle running costs – Many novated leases include expenses like registration, fuel, maintenance, insurance, and tyres. Payments deducted pre-tax – Your employer pays these costs directly from your pre-tax income. End of lease options – You can upgrade to a new car, refinance, or pay a residual amount to own the vehicle outright. It’s a simple idea — but since Fringe Benefits Tax (FBT) and income tax are involved, it’s important to get expert guidance. At KSH TAX, we help both employees and employers structure car salary sacrifice agreements correctly, ensuring you maximise benefits while staying compliant. Is Salary Sacrificing a Car Worth It? In many cases, yes — it can be. Salary sacrificing a car offers several benefits: You pay less income tax because lease payments come from pre-tax income. You enjoy a newer vehicle with regular upgrades. Your running costs are bundled and predictable. You may save on GST (depending on the lease provider). That said, it’s not automatically worthwhile for everyone. The savings depend on your income, the car’s value, and your employer’s policies. If you’re earning a moderate to high income and drive regularly, a novated lease can deliver excellent tax efficiency and convenience. But if you’re on a lower income, or you prefer the freedom to buy and sell vehicles as you please, it might not be as attractive. (For a balanced view, see Disadvantages of Salary Sacrifice and Is Salary Packaging a Car Worth It? to understand potential downsides.) Salary Sacrifice Car Pros and Cons Advantages of Car Salary Packaging Tax Savings: Your taxable income is reduced, which could lower your annual tax bill. Convenience: Lease payments and running costs are handled automatically. Budget Control: Regular deductions make it easier to plan your monthly expenses. Access to Better Cars: You can drive a newer, safer, or more fuel-efficient vehicle. No Upfront Costs: Usually, you don’t need to pay a deposit — the lease covers everything. GST Savings: Depending on your lease structure, you may save on GST for the purchase and running costs. Disadvantages of Car Salary Packaging Fringe Benefits Tax (FBT): Employers are responsible for FBT, but it can reduce savings if not managed correctly. No Immediate Ownership: You don’t own the car during the lease period. Exit Costs: Ending the lease early can be expensive. Residual Value Payment: You might need to pay a lump sum to own the car after the lease ends. Employer Participation: Not all employers offer novated leases or support salary packaging. How Does Salary Sacrifice Affect Tax? Salary sacrificing a car affects tax in two main ways: Income Tax Savings: Since payments come out of your pre-tax salary, your taxable income is lower. That means less tax withheld from your payslip. Fringe Benefits Tax (FBT): The ATO considers a company-provided car a “fringe benefit.” FBT is calculated based on the car’s value and usage. However, most novated lease providers structure packages to minimise or offset FBT, keeping the arrangement beneficial overall. It’s also important to note that salary packaging can affect other financial areas, such as: HELP/HECS repayments (based on reportable fringe benefits) Medicare Levy Surcharge Government benefit thresholds The right structure helps balance these factors — which is why KSH TAX reviews each client’s tax position before recommending a salary packaging setup. When Is Salary Sacrificing a Car Not Worth It? It may not be worth it if: Your income is below around $60,000 per year. You drive very few kilometres annually. Your employer doesn’t support salary packaging. You plan to change jobs soon (which could end the lease). You prefer to own your car outright or buy second-hand. If any of these apply, a novated lease could end up costing more than it saves — especially after FBT and admin fees. The key is to get personalised advice before signing anything. How to Salary Sacrifice a Car — Step-by-Step Check with your employer to confirm they allow salary packaging. Select a car that fits

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  • Tax
  • October 31, 2025

Pros and Cons of Salary Sacrifice You Should Know

What Is Salary Sacrifice (and Why It Matters) 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. The Advantages of Salary Packaging 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. 1. Reduced Taxable Income 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. 2. Boosted Superannuation Growth 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. 3. Access to Valuable Work-Related Perks 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. 4. Encourages Long-Term Financial Planning 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. The Disadvantages of Salary Sacrifice 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. 1. Reduced Take-Home Pay 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. 2. Impact on Other Entitlements 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. 3. Added Complexity and Administration 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. 4. Caps and Compliance Limits 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. 5. Not Always Suitable for Low or Mid-Income Earners 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. 6. Employer Restrictions 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. Salary Packaging: Pros and Cons at a Glance 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. When Salary Sacrifice Makes (and Doesn’t Make) Sense Salary sacrifice can make sense if: You have a stable income and can comfortably reduce your take-home pay. You’re close to retirement and want to boost your super balance. You’re in a higher tax bracket and want to reduce your taxable income. It may not be ideal if: You rely on your full income for daily expenses or loan repayments. You’re close to the concessional contribution cap and risk exceeding it. Your employer charges high administrative fees for managing salary packaging. 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. Should You Salary Sacrifice? Deciding whether to salary sacrifice depends on your individual situation. Consider: Your current and future cash flow. Your tax bracket and marginal tax rate. Your retirement goals and investment timeline. Your employer’s packaging policies and potential fees. Speaking to a registered tax agent or financial advisor can help clarify whether this strategy aligns with your financial goals. Conclusion: Think Before You Package 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

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  • Tax
  • October 31, 2025

What Is Salary Sacrifice? How It Works, Examples & Tax Benefits

When you hear “salary sacrifice,” it might sound like giving up your hard-earned income — but in Australia, it’s actually a smart tax strategy that could help you keep more of your money. Salary sacrifice (also called salary packaging) lets you use part of your pre-tax income to pay for specific expenses or benefits — meaning you could reduce your taxable income and increase your take-home value. At KSH TAX, Perth’s leading accounting and tax agents, we help both employees and employers understand how salary sacrifice works, when it’s worth it, and how to do it correctly. Let’s break it down clearly. Salary Sacrifice Meaning — What Does It Actually Mean? In simple terms, salary sacrifice is an agreement between you and your employer. You choose to “give up” part of your cash salary in exchange for non-cash benefits, such as super contributions, a car lease, or even rent payments. Because these benefits are paid from your pre-tax salary, your taxable income may go down — and with it, your overall tax bill. In short: You get the same total value, but a portion is paid in benefits instead of cash, helping you save on tax. Salary Sacrifice Example (Simple Breakdown) Let’s say Emma earns $90,000 a year. She decides to salary sacrifice $10,000 into her superannuation. Her employer pays $80,000 as taxable income and contributes $10,000 to her super. She’s now taxed on $80,000 instead of $90,000 — saving hundreds in income tax. Meanwhile, her super balance grows faster, setting her up for a stronger retirement. That’s a simple example, but the same principle applies to other approved benefits like cars, laptops, or mortgage payments — depending on your employer and ATO rules. How Does Salary Sacrifice Work in Australia? Salary sacrifice only works when there’s a formal agreement between you and your employer before you earn the income. You can’t backdate or apply it to money you’ve already received. Here’s the general process: You and your employer agree on what portion of your salary will be sacrificed. Your employer pays that amount directly toward approved benefits. Your taxable income reduces by the sacrificed amount. It’s that simple in principle — but in practice, every arrangement needs to comply with Australian Taxation Office (ATO) guidelines to avoid extra tax (like Fringe Benefits Tax). That’s where KSH TAX can help. We’ll review your situation, help you set it up correctly, and ensure it benefits you in the long run. What Can You Salary Sacrifice in Australia? Common salary sacrifice options include: Superannuation contributions – one of the most tax-effective options (see Salary Sacrificing to Super). Cars – through a novated lease arrangement (see Salary Sacrificing a Car). Mortgage repayments or rent – available to certain employees and industries (see Salary Sacrifice Mortgage). Work-related items – such as laptops, phones, or professional memberships. Living expenses for not-for-profit employees – many NFP organisations offer generous salary packaging (see Salary Packaging for Non-Profit Organisations). Remember, not every benefit is available to everyone. Your employer must agree to the arrangement, and certain items may attract Fringe Benefits Tax (FBT) — which can reduce the overall benefit (see FBT Salary Sacrifice). Is Salary Sacrifice Worth It? For many Australians, yes — salary sacrifice can absolutely be worth it. The main benefit is tax savings. By redirecting part of your income into pre-tax expenses, you may move into a lower tax bracket and boost your long-term financial position. It’s especially powerful when used for superannuation or a car under a novated lease, as these can offer significant savings over time. However, salary sacrifice isn’t one-size-fits-all. It depends on your income level, your employer’s policies, and what benefits you choose. For a balanced view, you might also want to read Pros & Cons of Salary Sacrifice — because while the benefits are real, there are some trade-offs. When is Salary Sacrifice Not Worth It? Salary sacrifice may not be worth it if: You’re on a low income and the tax savings are minimal. The benefit attracts high Fringe Benefits Tax (FBT), wiping out the gains. You rely on cash flow and can’t afford to reduce your take-home pay. You’re close to reaching contribution caps for super and risk excess tax. The key is getting the structure right — and that’s where professional guidance from KSH TAX makes a real difference. We’ll help you identify when it’s beneficial and when to avoid it. Salary Sacrifice for Employers — Why It Matters Employers can benefit too. Offering salary packaging can make your business more attractive to top talent and improve staff satisfaction. It’s especially useful for organisations wanting to provide flexible remuneration options without increasing overall payroll costs. KSH TAX works with employers to design compliant, cost-effective salary sacrifice programs (see Salary Sacrifice for Employers). Salary Sacrifice and Tax Implications Salary sacrifice can: Reduce your taxable income – lowering your annual tax bill. Affect your PAYG tax withheld – as the reported income changes. Change your tax return outcome – you may notice smaller refunds or less tax payable depending on your setup. But remember: some benefits may be subject to Fringe Benefits Tax (FBT), which is paid by your employer. Others, like super contributions, generally aren’t. For employees, this means professional advice is essential before setting up a package. KSH TAX can review your income structure and make sure your arrangement works for you — not against you. Should You Salary Sacrifice? If you’re wondering “Should I salary sacrifice?”, the answer depends on your goals. If you want to: Save on tax, Build your super faster, Finance a car efficiently, or Access employee benefits without losing out — Then yes, salary sacrifice can be a great idea. However, if you’re unsure which benefits apply to you or whether the numbers stack up, it’s worth getting tailored advice. Contact KSH TAX today for a salary sacrifice review. We’ll help you assess your options, calculate potential savings, and set it up the right way — ensuring you stay compliant

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