Positive salary packaging explained: how it affects your gross pay, super and tax

What is positive salary packaging?

Positive salary packaging is an Australian workplace arrangement where you agree to swap part of your gross salary for a benefit that is either exempt from fringe benefits tax (FBT) or taxed at a lower rate. The word 'positive' reflects that the arrangement leaves you better off financially than if you had received the cash and paid for the benefit yourself. Common examples include salary sacrificing into superannuation, packaging a car through a novated lease, or using pre-tax dollars for work-related items like laptops or parking.

Because positive salary packaging reduces your taxable income, it directly affects your gross pay, the super your employer pays, and the tax you owe. Understanding these effects helps you decide whether packaging is right for you.

How positive salary packaging affects your gross pay

Your gross pay is the amount your employer agrees to pay you before any deductions. When you enter a positive salary packaging arrangement, your employer deducts the packaged amount from your gross pay and uses it to provide the benefit. Your taxable income therefore falls by that amount.

For example, if your annual salary is $108,352 (the national line, index 100) and you package $10,000 for a car, your taxable income becomes $98,352. Your gross pay for tax purposes is $98,352, even though your base salary remains $108,352. The Salary Index measures your base salary, not your packaged income, so your index stays at 100. But your after-tax position improves.

It is important to note that your employer's super guarantee (12% from 1 July 2026) is usually calculated on your ordinary time earnings. If you package a non-super benefit, your ordinary time earnings may reduce, and your employer's super contribution may also reduce. Always check your employment contract or award. For more on how super interacts with pay, see how the index works.

How positive salary packaging affects your tax

The main benefit of positive salary packaging is tax savings. By lowering your taxable income, you pay less income tax and Medicare levy. Using the tax rates for 2026–27 (nil to $18,200; 15% to $45,000; 30% to $135,000; 37% to $190,000; 45% above), the saving depends on your marginal rate.

Take an employee earning $108,352 (index 100). Their marginal rate is 30% plus 2% Medicare. Packaging $10,000 saves $3,200 in tax and Medicare. If they package $15,000, the saving is $4,800. For someone on the 37% bracket, the saving is even larger.

However, some packaged benefits attract FBT, which the employer may pass on. Positive salary packaging typically uses FBT-exempt items (e.g., portable electronic devices, certain car parking, or super contributions up to the concessional cap). Always confirm the FBT status with your employer or tax adviser.

How positive salary packaging affects your super

Packaging into super is one of the most popular forms of positive salary packaging. You can salary sacrifice additional contributions into your super fund, which are taxed at 15% instead of your marginal rate. For someone on the 30% bracket, that is a 15% saving (plus Medicare). The concessional contributions cap for 2026–27 is $27,500, including your employer's 12% guarantee.

Example: Your base salary is $108,352. Your employer pays 12% super ($13,002). You decide to salary sacrifice an extra $10,000 into super. Your taxable income becomes $98,352, and your super receives $23,002 in total contributions. The $10,000 sacrifice is taxed at 15% inside the fund, saving you $1,700 compared to taking it as cash (30% + 2% = 32% tax). Over time, this compounding can significantly boost your retirement savings.

For more on super and pay, see topics.

Salary index and positive salary packaging

The Salary Index () benchmarks your gross ordinary-time earnings against the national line of $108,352 (index 100). Positive salary packaging does not change your index because the index uses your pre-packaging salary. However, packaging can improve your effective after-tax income relative to the index. For example, a person on index 100 who packages $10,000 effectively has the after-tax spending power of someone on a higher index, because they pay less tax.

State and industry indexes also provide context. For instance, the mining industry index is 154.7, and the retail trade index is 75.9. A retail worker on $82,000 (index 75.9) who packages a small amount may see a proportionally larger tax saving than a mining worker on $167,000 (index 154.7), because the retail worker's marginal rate is lower. See industries for more.

Is positive salary packaging right for you?

Positive salary packaging is most beneficial if you have a steady income, a marginal tax rate above 15%, and a genuine need for the benefit. It is less useful for low-income earners whose tax savings are small. Also, packaging can reduce your eligibility for some government benefits that are based on adjusted taxable income.

Always read your employer's salary packaging policy and consider consulting a tax professional. The Australian Taxation Office (ATO) and Fair Work Ombudsman provide guidance on salary sacrifice arrangements. For pay guides and award information, visit pay guides.

In summary, positive salary packaging can be a smart way to reduce tax and boost super, but it requires careful planning. Use the Salary Index to understand where your base pay sits, and then decide whether packaging fits your financial goals.