Salary Packaging and Salary Sacrifice Australia 2025–26: How to Boost Your Take-Home Pay

Are you leaving money on the table every pay cycle? Salary packaging — also called salary sacrifice — is one of the most effective and ATO-approved strategies for Australian employees to reduce their taxable income and keep more of what they earn. Whether you work in healthcare, the not-for-profit sector, or a private company, understanding how salary packaging works in 2025–26 could make a meaningful difference to your finances.

What Is Salary Packaging?

Salary packaging is a formal arrangement between you and your employer where you agree to receive part of your remuneration as non-cash benefits instead of salary. Because those benefits are provided from your pre-tax income, you pay income tax on a lower salary — which means less tax withheld and more money in your pocket.

The ATO recognises salary sacrifice as a legitimate tax strategy, provided the arrangement is set up correctly. The key rule: the agreement must be entered into before you perform the work, not after. Backdating or redirecting salary you’ve already earned doesn’t count — the ATO treats that as ordinary income and taxes it accordingly.

How Does It Work in Practice?

Here’s a simple example. Suppose you earn $100,000 a year and you salary sacrifice a work laptop worth $2,000 under an FBT-exempt arrangement:

  • Without packaging: You pay income tax on $100,000, then buy the laptop from your after-tax pay.
  • With packaging: Your taxable salary drops to $98,000. You save approximately $690 in income tax (at a ~34.5% effective marginal rate) — and the laptop is still yours.

The savings grow significantly when you package higher-value items like superannuation contributions or a novated lease vehicle.

What Can You Salary Sacrifice?

Superannuation Contributions

Salary sacrificing into super is one of the most popular strategies for Australians looking to build retirement savings while reducing their tax bill. Contributions made via salary sacrifice are taxed at just 15% inside your super fund — well below the 32.5%, 37%, or 45% marginal rates that apply to most working Australians.

Important: From 1 July 2025, the Super Guarantee rate increased to 12%. Your employer must still pay SG on your full pre-sacrifice ordinary time earnings — they cannot use your salary-sacrificed super to offset their SG obligations.

The concessional contributions cap for 2025–26 is $30,000 (including employer SG contributions). Exceeding this cap means the excess is taxed at your marginal rate.

Novated Leases and Electric Vehicles

A novated lease lets you finance a car and its running costs — fuel, registration, insurance, servicing — from your pre-tax salary through a three-way agreement between you, your employer, and a financier.

The big news for 2025–26: battery electric vehicles (BEVs) and hydrogen fuel cell vehicles remain exempt from Fringe Benefits Tax (FBT), provided the car:

  • Carries fewer than nine passengers and a load under one tonne
  • Was first held and used on or after 1 July 2022
  • Has never been subject to Luxury Car Tax

Running costs for eligible EVs — including home charging electricity — are also FBT-exempt. The ATO’s EV home charging rate is 5.47 cents per kilometre from 1 April 2026.

Note on plug-in hybrids (PHEVs): As of 1 April 2025, PHEVs are generally no longer FBT-exempt. If you had a PHEV under an exempt arrangement before that date, grandfathering rules may apply — but any change to your lease terms, employer, or re-novation will end the exemption.

Work-Related Items (Laptops, Phones, and More)

Under section 58X of the Fringe Benefits Tax Assessment Act 1986, certain work-related items are completely FBT-exempt when provided primarily for employment use. Eligible items include:

  • Laptops and tablets
  • Mobile phones
  • Portable printers and GPS devices
  • Computer software
  • Protective clothing and tools of trade
  • Briefcases

One item per FBT year rule: Most employees can only package one device of each type per FBT year. However, if your employer has an aggregated annual turnover under $50 million, this restriction doesn’t apply — multiple identical devices can be packaged in the same year.

Meal Entertainment (NFP Sector)

Employees of eligible not-for-profit organisations can package meal entertainment — restaurant meals, functions, and associated accommodation — up to a separate grossed-up cap of $5,000 per FBT year. Any amount above this rolls into the general FBT cap.

Who Benefits Most from Salary Packaging?

Not-for-Profit and Healthcare Workers

If you work for a Public Benevolent Institution (PBI) — such as a hospital, aged care provider, or registered charity — you have access to the most generous packaging concessions in Australia:

  • PBIs and Health Promotion Charities: FBT-exempt benefits up to a $30,000 grossed-up cap per employee per year
  • Public and NFP Hospitals / Public Ambulance Services: FBT-exempt benefits up to a $17,000 grossed-up cap

This means a nurse earning $80,000 at a public hospital could package up to $9,010 in living expenses (the pre-grossed-up equivalent of $17,000) completely free of FBT — a substantial tax saving.

Private Sector Employees

Private sector workers don’t have access to the same FBT-exempt caps, but can still benefit significantly through:

  • Salary sacrificing into superannuation (always tax-effective)
  • Packaging FBT-exempt work-related items (laptops, phones)
  • Novated leases on eligible electric vehicles

Understanding Reportable Fringe Benefits (RFBA)

If the total taxable value of your packaged benefits exceeds $2,000 in an FBT year (1 April to 31 March), your employer must report a Reportable Fringe Benefits Amount (RFBA) on your income statement. The RFBA is calculated as your taxable benefit value multiplied by 1.8868 — so a $2,000 taxable benefit generates a minimum RFBA of $3,773.

The RFBA is not directly taxed, but it is added to your income for certain government tests. A higher RFBA can affect:

  • HELP/VET Student Loan repayments — your compulsory repayment threshold may be reached sooner
  • Family Tax Benefit and Child Care Subsidy — your adjusted income may reduce entitlements
  • Medicare Levy Surcharge — you may cross the income threshold for the surcharge
  • Division 293 tax — high-income earners may face additional super tax

Always model the full impact of packaging before committing, especially if you have a HELP debt or receive family payments.

Common Salary Packaging Mistakes to Avoid

  • Signing agreements retrospectively: The arrangement must be in place before you earn the income — not after.
  • Double-dipping on deductions: You cannot claim a personal tax deduction for expenses already paid through salary sacrifice.
  • Ignoring RFBA impacts: Packaging can reduce your take-home tax but increase your adjusted income for government benefit tests.
  • Modifying grandfathered PHEV leases: Any change to a pre-1 April 2025 PHEV arrangement will end the FBT exemption.
  • Exceeding NFP caps: Benefits above the $30,000 or $17,000 grossed-up cap attract 47% FBT — budget carefully.
  • Breaching the one-device rule: Packaging two laptops in one FBT year (for employers with turnover over $50 million) creates an FBT liability.

Employer Compliance Checklist

If you’re an employer offering salary packaging, make sure you:

  • Maintain written, prospective agreements for every participating employee
  • Report correctly under STP Phase 2 — use Type S (super) and Type O (other benefits) salary sacrifice codes
  • Calculate Super Guarantee on pre-sacrifice OTE — not the reduced post-sacrifice salary
  • Track FBT caps and RFBA across the full FBT year (1 April to 31 March)
  • Lodge your FBT return by 21 May (or 25 June if lodging through a tax agent)

Make the Most of Salary Packaging in 2025–26

Salary packaging is a powerful, ATO-endorsed tool — but it works best when it’s tailored to your individual circumstances. The right mix of benefits depends on your income, employer type, family situation, HELP debt, and financial goals.

Ready to find out how much you could save? The team at TaxServe Australia specialises in helping employees and employers structure compliant, tax-effective salary packaging arrangements. Contact us today for a personalised review — and start keeping more of your hard-earned income.

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Written & reviewed by Nick Moon, CPA & Registered Tax Agent

Nick Moon is a Certified Practising Accountant (CPA) and Registered Tax Agent with a Master of Professional Accounting, and the founder of Tax Serve — a CPA-led accounting firm at 11 Palmerston St, North Lakes QLD 4509, serving individuals and small businesses across Australia. This article reflects Australian tax law and ATO guidance current at the time of writing and is general information only, not personal advice. Book a consultation or call 0407 579 448.