Is salary sacrificing worthwhile? How it affects your salary index position

What is salary sacrificing?

Salary sacrificing is an arrangement where you agree to forgo part of your pre-tax salary in exchange for benefits your employer provides. Common examples include additional superannuation contributions, a car via novated lease, or electronic devices. The sacrificed amount is not included in your assessable income for tax purposes, which can reduce the tax you pay. However, some benefits may attract fringe benefits tax (FBT), which can offset the savings.

How salary sacrificing affects your salary index

The Salary Index measures your gross ordinary-time earnings against the national line of 100, which equals $108,352 per year (based on ABS Average Weekly Earnings, May 2026). Your index is calculated as your yearly gross salary divided by $108,352, times 100. Salary sacrificing does not change this figure because the index uses your pre-sacrifice earnings. For instance, if you earn $130,000 gross, your index is 120.0 regardless of whether you sacrifice $15,000 into super. The index shows where your pay sits nationally, while salary sacrificing affects your net position.

Tax benefits and considerations

Australia’s progressive tax system for 2026–27 (excluding Medicare) has these brackets:

• $0–$18,200: nil
• $18,201–$45,000: 15%
• $45,001–$135,000: 30%
• $135,001–$190,000: 37%
• Over $190,000: 45% Plus a 2% Medicare levy. Salary sacrificing reduces your taxable income, potentially lowering your marginal rate. For example, someone earning $140,000 (index 129.2) in the 37% bracket could sacrifice $10,000 into super, dropping taxable income to $130,000 (still 37% bracket, but saving $3,700 in tax plus $200 Medicare). The sacrificed super contribution is taxed at 15% inside the fund, so the net saving is $2,700 ($3,900 tax saved minus $1,500 contributions tax).

Superannuation salary sacrifice

Super salary sacrifice is the most common and often most worthwhile arrangement. From 1 July 2026, the super guarantee is 12% on earnings up to $270,830. You can also make additional concessional contributions up to the cap of $27,500 per year (including the super guarantee). Salary sacrifice contributions count toward this cap. The benefit is clear: contributions are taxed at 15% instead of your marginal rate. For a worker on $120,000 (index 110.8, marginal rate 30%), sacrificing $10,000 saves $1,500 in tax (30% + 2% Medicare = 32% vs 15%). For someone on $200,000 (index 184.6, marginal rate 45%), the saving is $3,200 per $10,000.

Other common salary sacrifice arrangements

• Novated lease for a car: You sacrifice part of your salary to cover lease payments and running costs. If the car is FBT-exempt (e.g., electric vehicles below the luxury car tax threshold), the benefit can be significant. Otherwise, FBT may apply, reducing the net advantage.
• Electronic devices: Laptops, tablets, and phones can be salary sacrificed, often with FBT exemptions if used primarily for work.
• Additional leave: Some employers allow you to purchase extra annual leave via salary sacrifice, effectively spreading your salary over more weeks.

Each arrangement has its own tax treatment. Always check with your employer and a tax professional.

Is it worthwhile for you?

To decide if salary sacrificing is worthwhile, consider:

• Your marginal tax rate: higher rates mean bigger savings.
• The type of benefit: super is almost always beneficial; cars may be if FBT-exempt.
• Your cash flow needs: sacrificing reduces your take-home pay.
• Caps and limits: super concessional cap, FBT thresholds, and the super guarantee maximum contribution base.

For low-income earners, such as those on the national minimum wage (index 48.2, $52,255 per year), salary sacrificing offers little benefit because the tax saving is small. For middle and high earners, especially those in the 37% or 45% brackets, it can significantly boost retirement savings or provide tax-effective benefits.

See how the index works for more on calculating your position, and browse pay guides for award rates. If you’re in a specific state or industry, your index may differ from the national average.

Final thoughts

Salary sacrificing is a legitimate way to reduce tax and increase long-term savings, but it’s not a one-size-fits-all solution. Your gross salary index tells you where you stand nationally, but your net financial position depends on how you structure your pay. Always review the terms with your employer and consider seeking advice from a qualified accountant or financial planner.

Key takeaways

• Salary sacrificing does not alter your salary index.
• It is most worthwhile for those in higher tax brackets.
• Super salary sacrifice is generally the best option.
• Be aware of caps, FBT, and your cash flow needs.