What Is Salary Packaging? How It Works, Benefits & ATO Rules Explained

Salary packaging (also called salary sacrificing) is an arrangement in which an employee agrees to receive a lower cash salary in exchange for non-cash benefits — such as a car, laptop, or extra superannuation contributions.

It’s a tax-effective strategy that reduces your taxable income, but it must be structured carefully to comply with ATO and fringe benefits tax (FBT) rules.

How Salary Packaging Works

Without Packaging	With Salary Packaging
$100,000 gross salary	$90,000 salary + $10,000 benefits
Full income taxed	Tax only applied to reduced salary
No employer-paid benefits	Employer provides selected benefits

The packaged amount is deducted from gross salary before tax, lowering the employee’s reportable income.

Common Salary Packaging Inclusions

Benefit Type	FBT-Exempt?	Notes
Extra super contributions	✅ Yes	Reduces taxable income; subject to caps
Work-related devices	✅ Yes	Laptops, phones used primarily for work
Novated lease (car)	❌ No	Attracts FBT, but can still be tax-effective
Self-education expenses	❌ Sometimes	Must meet ATO criteria
Childcare or rent	❌ Usually No	Often excluded from valid benefits

Some charities and not-for-profits enjoy higher FBT-exempt thresholds, allowing more tax-effective packaging.

Who Can Use Salary Packaging?

• Employees (not sole traders or contractors)
• Most private sector workers, but employer agreement required
• Public and health sector workers often have enhanced limits
• Must be documented in a formal salary sacrifice agreement

Not all employers offer salary packaging, and participation is voluntary.

Tax Implications

• Reduces reportable taxable income
• Certain benefits may still be subject to FBT, paid by employer
• Some packaged items affect reportable fringe benefits amount (RFBA), which may impact:
  • Family tax benefits
  • HELP/HECS repayments
  • Child support calculations

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How Ozobooks Helps

• Reviews which benefits are suitable for packaging
• Structures compliant agreements between employer and employee
• Calculates impact on income tax, FBT, and take-home pay
• Ensures STP and payslip accuracy
• Optimises salary structure for maximum net benefit

FAQ

Q1: Is salary packaging worth it?
It depends — if done correctly, it can reduce tax and increase take-home pay, especially for higher earners or those in health/education.

Q2: Can I package rent or a mortgage?
Only in specific sectors (e.g. not-for-profit or remote area employees). Generally, no for most private employees.

Q3: Do I need to report salary-packaged benefits?
Yes — especially if they generate a reportable fringe benefit. It may affect your government entitlements.

Q4: Can contractors use salary packaging?
No — salary packaging only applies to employees on payroll.