Salary packaging and the 3 key benefits

Updated on 2 September 2024 | 3 min read

Nobody enjoys watching their hard-earned pay get eaten up by tax. But if you’re a middle-to-high income earner, salary packaging could be a way to pay less tax and have more money to play with. Let’s see how it works.

What is salary packaging?

Usually, you pay for expenses like bills, food and loans with your take-home pay after it’s taxed.

Salary packaging means you use some of your pay for certain expenses before it's taxed.

This can include things like superannuation, cars, mortgage repayments and laptops, depending on your employer and the industry you work in.

Salary sacrifice vs salary packaging

Salary packaging is also called salary sacrifice (particularly for super contributions).

Benefits of salary packaging

Pay less income tax

Grow your super quicker

Have more money to spend

By spending part of your salary before tax, you reduce your taxable income. And that may mean paying less tax – so you keep more of your salary.

If you earn more than $45,000 per year, salary packaging super contributions could be a good way to power up your savings for retirement, depending on your circumstances.

How does salary sacrifice work thumbnail

Learn more about how salary packaging your super can work.

How does salary packaging work?

Here’s a simple breakdown:

You and your employer agree on how much to salary package.
Your employer takes this money from your pre-tax salary to pay for or reimburse certain expenses.
The rest of your salary then gets taxed.

So, a salary package lets you pay for some things with tax-free money.

If you're salary packaging superannuation, your employer pays this to your super fund as concessional contributions.

Who can salary package?

Full-time, part-time and casual employees can use salary packaging as long as their employer offers it. Not all do.

So, you'll need to check with your employer about what's included in your workplace benefits program.

Salary packaging is more common in healthcare, private education or charity and public benevolent institutions. These employers can get tax savings when packaging living expenses, meals, and entertainment.

Keep in mind that the benefits of salary packaging depend on how much you earn. If you're a low-income earner, there are less income tax benefits.

The ATO says that salary packaging may also affect things like:

the Medicare levy surcharge
some tax offsets
child support payments
some government benefits
study loan repayments that are compulsory.

Before you salary package, it's a good idea to get personal financial advice to work out if it's right for you. You can get advice about salary packaging your super as part of your membership with ART.

What can I salary package?

Things you'd normally buy or pay for with your take-home pay can be part of a salary package. But it depends on the industry you work in and what your employer agrees to.

Common expenses in salary packages

Loan repayments
Rent
School fees
Health insurance
Mobile phone

What you can’t salary package

Any salary and wages, leave entitlements, bonuses or commissions that you accrue before the salary package agreement starts
Anything paid with direct debits from your pay

Salary packaging super contributions

Most employers will offer salary packaging for your super, even if they don't offer it for other things.

But if you're a low-income earner, you might not get the tax benefits of salary packaging.

Instead, you can grow your super in other ways, like making after-tax contributions.

Use our salary packaging calculator for super to compare your options.

Get started

Is salary packaging worth it?

For many people, salary packaging can be a powerful tool to save money. Especially if you pay high taxes.

It's also a great way to add to your super regularly and grow your savings to retire comfortably.

But it's not for everyone. Before you decide:

Think about your goals and current situation.
Make sure it fits within your budget.
Remember to check the yearly limits for adding to your super.

Getting professional tax advice can also help.

How to save tax using your super

Learn some great ways you could grow your super and save on tax, like how salary sacrifice works.

Watch or listen

How to start salary packaging superannuation

Once you know how much you want to add to your super before tax, contact your payroll office or salary packaging provider.

If you're a member with us, you can use our email template to let them know you want to start a salary sacrifice deduction.

Not a member? It's easy to join.

How much more could you save?

We’ve crunched the numbers. Check how much salary packaging can grow your super.

See the difference