If you’re employed and you haven’t looked at your salary packaging arrangements recently, you could be paying more tax than you need to. Salary packaging — sometimes called salary sacrifice — is one of the most accessible tax strategies available to employees, and year-end is exactly the right time to review it.

How salary packaging works

The core principle is simple. Instead of receiving your full salary in cash and paying income tax on all of it, you agree with your employer to redirect part of your pre-tax salary towards certain benefits. You pay income tax only on the reduced cash salary — not the total package. For example, if your salary is $100,000 and you package $5,000 of eligible expenses, you pay income tax on $95,000. The tax saving depends on your marginal rate, but for someone in the 34.5% bracket that’s approximately $1,725 for the year — just from a single packaging arrangement.

What can be packaged?

The most common salary packaging arrangements involve additional superannuation contributions, novated vehicle leases, laptops and devices used for work, and professional memberships or subscriptions. Some employers — particularly not-for-profits, hospitals, and public benevolent institutions — can offer more generous packaging arrangements under special FBT exemptions, which can deliver substantially larger tax savings. If you work for a charity or public hospital, it’s especially worth checking what’s available, as the benefits in these sectors can be significantly more favourable than in the private sector.

The FBT consideration

Not all packaged benefits are tax-free. Fringe Benefits Tax (FBT) is a tax paid by the employer on certain non-cash benefits, calculated at a high effective rate. In practice, employers often pass the FBT cost back to the employee, which can reduce or eliminate the tax advantage of packaging that benefit. Additional super contributions are not subject to FBT at all, making them a reliable choice. Other items, like cars under a novated lease, are subject to FBT but the calculations can still work in your favour depending on how much you drive and the vehicle’s value. The key is to understand the full picture before committing.

Who benefits most, and what to do now

Higher income earners tend to get the greatest benefit from salary packaging because the saving per dollar packaged is larger at higher marginal rates. But salary packaging can be worthwhile at almost any income level — particularly for super contributions, which offer a consistent tax advantage. It also works well for employees already planning certain purchases, like a laptop or a car, who can arrange those to be packaged rather than paid out of after-tax income. If you haven’t reviewed your arrangements this year, check with your employer’s HR or payroll team about what options are available. Some changes need to be set up in advance rather than retrospectively, so acting now means you’re well positioned for 2026–27 even if this financial year is already locked in.