Salary Sacrificing in Australia 2026: How to Make the Most of Your Income

Salary sacrificing, sometimes called salary packaging, is an arrangement where you agree with your employer to forgo part of your future salary in exchange for benefits of similar value. These benefits are paid from your pre-tax income, which can reduce your taxable salary and potentially lower the amount of tax you pay.

Common Salary Sacrifice Benefits

• Superannuation contributions: Boosting your retirement savings by directing extra pre-tax income into your super fund.
• Novated car leases: Leasing a car (including eligible electric vehicles) through your employer.
• Work-related devices: Laptops, phones, and other devices used for work.
• Other benefits: Depending on your employer, this can include memberships, meal entertainment, or accommodation, especially in certain sectors.

Who Can Access Salary Sacrificing?

Most employees can access salary sacrificing if their employer offers it. It’s especially common in the public sector, health, education, and larger private organisations with established packaging programs. However, not all employers provide these options, and the types of benefits available can vary.

Recent years have seen some important changes that affect salary sacrificing strategies:

Increased Superannuation Concessional Cap

From 1 July 2024, the annual concessional (before-tax) contributions cap for superannuation increased to $30,000. This gives employees more room to make extra pre-tax contributions to their super, either through salary sacrifice or personal deductible contributions.

Electric Vehicle Fringe Benefits Tax (FBT) Exemption

The FBT exemption for eligible electric vehicles remains in place for 2026. This means that employees who salary package an eligible EV through a novated lease can access significant tax savings compared to traditional car purchases or leases.

Super Guarantee on Pre-Sacrifice Salary

Employers are required to pay compulsory superannuation (the Super Guarantee) based on your original salary, not your reduced post-sacrifice income. This ensures your employer contributions aren’t reduced by your salary packaging arrangements.

Enhanced Reporting Requirements

All salary sacrifice contributions must now be reported on your income statement, which is accessible via myGov and the ATO. This helps you keep track of your total contributions and avoid exceeding caps.

Salary sacrificing can be tailored to suit different goals and circumstances. Here are some of the most common ways Australians are using it this year:

Boosting Superannuation Savings

With the higher concessional cap, many people are choosing to direct more of their pre-tax salary into super. This can be especially beneficial for those earning above the lowest tax brackets, as super contributions are generally taxed at a lower rate than most personal income. Over time, this can help grow your retirement savings more efficiently.

Novated Leasing for Electric Vehicles

The ongoing FBT exemption for eligible electric vehicles has made novated leasing a popular option. By salary packaging an EV, employees can reduce their taxable income and access potential savings on running costs. This option is particularly attractive for those who want to drive a new car while supporting environmental goals.

Accessing Work-Related Benefits

Depending on your employer and industry, you may be able to salary sacrifice for work-related devices, memberships, or even meal entertainment. Some sectors, such as health and not-for-profit organisations, offer additional fringe benefits tax concessions, allowing employees to access certain benefits up to set annual limits.

While salary sacrificing can offer real advantages, it’s important to be aware of potential pitfalls:

Contribution Caps

If your total concessional super contributions (including employer and salary sacrifice amounts) exceed the annual cap, you may be liable for extra tax. It’s important to monitor your contributions each year.

Impact on Take-Home Pay

Salary sacrificing reduces your cash salary, so you’ll need to budget for a lower regular income. Make sure you’re comfortable with the impact on your day-to-day finances before entering an agreement.

Employer Limitations

Not all employers offer salary sacrificing, and the range of benefits can differ. Smaller businesses may have fewer options, and some benefits may only be available in certain industries or roles.

Effect on Other Entitlements

Some work entitlements, such as leave loading or redundancy payments, may be calculated on your reduced salary after salary sacrifice. It’s important to check your employment contract or speak with your HR or payroll team to understand how salary sacrificing might affect these benefits.

Timing and Paperwork

Salary sacrifice arrangements must be set up in advance and documented with your employer. Changes partway through the financial year can affect your tax position, so it’s best to plan ahead and keep records of your agreements.

If you’re considering salary sacrificing in 2026, here are some practical steps to help you get started:

1. Check with your employer: Find out what salary sacrifice options are available and whether there are any restrictions or fees.
2. Review your finances: Make sure you understand how salary sacrificing will affect your take-home pay and overall budget.
3. Monitor your contributions: Keep track of your total super contributions to avoid exceeding caps.
4. Seek advice if needed: If you’re unsure about the best approach, consider speaking with a financial adviser or your payroll team.

Salary sacrificing remains a flexible and effective way for Australians to manage their income, save for retirement, and access valuable benefits in 2026. With higher super caps and ongoing incentives for electric vehicles, there are more opportunities than ever to tailor a salary packaging strategy to your needs. However, it’s important to understand the rules, check your employer’s offerings, and consider how salary sacrificing fits with your financial goals and circumstances.