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Salary sacrifice school fees: How it affects your take-home pay and index
Learn how salary sacrificing school fees works in Australia, its impact on your pay index, and how to compare job offers with this benefit.
The value of salary sacrificing school fees is not captured by the earnings index; it depends on your marginal tax rate and the amount sacrificed.
What is salary sacrifice school fees?
Salary sacrifice school fees is an arrangement where you agree to forgo part of your pre-tax salary in exchange for your employer paying your children's school fees directly. This reduces your taxable income, so less tax is withheld from your pay each period. The benefit is that you save the tax you would have paid on that income, effectively making the fees cheaper.
In Australia, salary packaging for school fees is most common in the not-for-profit, health, education, and government sectors. Some private employers also offer it. The arrangement must be documented in a salary sacrifice agreement and cannot reduce your pay below the national minimum wage or any applicable award rate.
How does it affect your pay index?
The Salary Index measures gross ordinary-time earnings before any salary sacrifice. So your index number remains based on your gross salary. For example, if you earn $100,000 gross and sacrifice $10,000 for school fees, your gross is still $100,000, giving an index of about 92.3 (100,000 ÷ 108,352 × 100). The sacrifice does not change your index; it changes your take-home pay because you saved tax on the sacrificed amount.
When comparing job offers, use the index to compare base salaries, but factor in the tax savings from salary sacrifice. A job with a slightly lower base but salary packaging may give you more after-tax income if you have school fees.
Tax and super considerations
Using the 2026–27 resident tax rates (excluding Medicare), if you are in the 30% bracket ($45,001–$135,000), every dollar sacrificed saves 30¢ in tax plus 2% Medicare levy, so 32¢. Sacrificing $10,000 saves $3,200. However, fringe benefits tax (FBT) may apply if the school is not an exempt institution. Many non-government schools are not exempt, so the employer may need to pay FBT, which can reduce the benefit. Some employers use a salary packaging provider to manage this.
Your super guarantee is based on your gross salary before the sacrifice, so you do not lose super contributions. The 12% super guarantee (from 1 July 2026) is calculated on your ordinary-time earnings, not your sacrificed amount.
Comparing job offers with salary sacrifice
When reading a job ad, look for terms like "salary packaging," "total remuneration package," or "benefits include school fee assistance." Some employers advertise a total remuneration package (TRP) that includes the value of salary sacrifice. Compare the base salary plus the estimated tax benefit. For example, a job offering $90,000 base with salary sacrifice school fees may be better than a $95,000 job without, if you have $10,000 in fees and are in the 30% tax bracket.
Use the pay guides to check award rates and minimums. The states page shows how average earnings vary by location, which can affect your tax bracket. For instance, if you work in the ACT (index 109.9) or WA (106.9), you are more likely to be in a higher tax bracket, making salary sacrifice more valuable.
Industry and state variations
Salary sacrifice for school fees is more common in industries where salary packaging is standard, such as Education and training (index 105.5) and Health care and social assistance (index 97.8). In Mining (index 154.7), it is less common but base salaries are higher, so the tax savings from any sacrifice would be larger.
State indices also matter: if you live in NSW (index 101.2) or VIC (98.0), your earnings are close to the national line. In TAS (88.6), earnings are lower, so you may be in a lower tax bracket, reducing the benefit of salary sacrifice.
How the index works for this benefit
The how the index works page explains that the index is a benchmark for gross ordinary-time earnings. Salary sacrifice does not change your gross, so your index stays the same. But the real value of the benefit is the tax saved. To compare total compensation, add the tax saving to your after-tax income from the base salary.
For more on related topics, see the topics page for salary packaging, fringe benefits tax, and school fee assistance.
Questions people ask
Can I salary sacrifice school fees in any job?
No, salary sacrifice for school fees is not available in every job. It is typically offered by employers in the not-for-profit, health, education, and government sectors. Private sector employers may offer it as part of a broader salary packaging policy, but it is less common. Always check your employment contract or ask HR.
Does salary sacrifice school fees affect my superannuation?
No, the super guarantee is calculated on your gross salary before any salary sacrifice for school fees. Your employer must still contribute 12% (from 1 July 2026) of your ordinary-time earnings, regardless of the sacrifice. However, if you salary sacrifice into super, that is a different arrangement and does reduce your gross for SG purposes.
Is there a limit on how much I can salary sacrifice for school fees?
There is no specific dollar limit set by the ATO for salary sacrificing school fees, but the total salary package must be agreed with your employer and cannot reduce your pay below the national minimum wage or any applicable award rate. Additionally, if the school is not an exempt school, fringe benefits tax may apply, which could reduce the net benefit.